DRN-6132383

The complaint Mrs S and Mr S have complained about the handling of a legal expenses insurance claim by ARAG Legal Expenses Insurance Company Limited trading as DAS. Mrs S has dealt with the claim and complaint correspondence, so I will mostly refer to her. What happened Mrs S and Mr S made a claim on their policy to cover legal costs relating to a dispute with their neighbours. In 2017, ARAG appointed one of its panel firms of solicitors (which I will call “D”) to act for them. Sometime later, the solicitors issued court proceedings and I understand the case was listed for trial in June 2024. Mrs S was unhappy with D’s handling of her case and raised issues with ARAG on a number of occasions. In late 2023, Mrs S raised further concerns and discussed with ARAG the possibility of changing solicitors. ARAG discussed appointing another firm of solicitors (“L”) but Mrs S said she would prefer to stay with D. However, by this time D said the relationship had broken down and it was no longer willing to act for her. As D would no longer act, ARAG took steps to appoint L. Mrs S complained that it took months for ARAG to do so and L were asked only to assess the claim for prospects, rather than to start acting for her in the legal case. In the meantime, she was without any solicitor and had to deal with the continuing court proceedings unrepresented. Mrs S says that she had to pay L to carry out some work privately and also incurred court fees, as there were deadlines to be met. Mrs S also said the only reason D stopped acting for them was because ARAG had wrongly told D she had instructed another solicitor. Mrs S raised a complaint about these matters and one of my colleagues issued a final decision in 2025, in which he determined that while ARAG had told D, Mrs S was considering instructing another firm, this was not the only reason D refused to continue to act for her. D had referred to the relationship having broken down and it was clear there’d been a number of complaints. So, my colleague did not think ARAG was responsible for having to change solicitor. My colleague also determined that it was reasonable that L review the prospects of the case, as it is an ongoing policy requirement that prospects exist and they can change as a case progressed. He said that this would have happened before major steps to trial in any event. However, my colleague found that there had been a delay in ARAG formally asking L to assess the case, which was avoidable. Because of this, my colleague determined that ARAG should reimburse Mrs S for the legal costs she had to pay between December 2023 and February 2024, on production of suitable evidence of them and pay her £600 compensation. In March 2024, L said they did not think there were reasonable prospects of Mrs S’s case succeeding at trial and recommended she try and enter mediation with the other side. The solicitors referred to a counsel’s opinion previously obtained by D that also said there were less than 51% chance of success. L’s letter also explained that, as the advice was that the

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claim didn’t have reasonable prospects of success, it was unlikely that further funding would be provided by ARAG. ARAG says that in the face of this advice, it agreed to fund L to try and resolve the claim on the best terms for Mrs S only. Mrs S, however, says she was effectively abandoned and no assistance was received to resolve the case. I understand there was a pre-trial review in and the claim was struck out on 6 June 2024, with a costs order made against Mrs S. She considers that the outcome of the claim was due to ARAG’s delays. She says she was not told that L had assessed that there were no longer reasonable prospects and that cover was to be withdrawn until after the claim was struck out by the court. Mrs S therefore complained. She is concerned that the policy indemnity limit of £100,000 will not be enough to cover the panel solicitors’ costs and the other side’s costs. Mrs S feels very strongly that the panel solicitors should not be paid out of her indemnity limit, as she says D did not conduct the claim properly and L only assessed the prospects. which was for ARAG’s benefit and did not advance the case at all. Mrs S therefore also says that the costs, if they are to be paid, should be assessed by an independent law costs draftsman to represent her interests. In its final response to the complaint, ARAG said it was entitled to rely on L’s opinion on prospects and so it correctly withdrew cover but did agree to fund L to try and resolve the case. However, ARAG recognised there was a delay in telling Mrs S that cover had been withdrawn and apologised for that and offered £300 compensation but said it had asked L to pass this on before the claim was struck out and she was already aware there were no prospects and it authorised L to try and resolve the claim on the best terms. ARAG also said there was no conflict in it carrying out costs assessment inhouse but given her comments it would appoint independent costs draftsman. (Although I understand that since then ARAG has decided to take the costs assessment back in house.) Mrs S remained unhappy, so referred the matter to us. Mrs S made a number of submissions in support of the complaint. I have considered everything she has said and have summarised her main points below: • L gave their initial thoughts on the case in March 2024 and asked her for further information - it was far from a final opinion. • L also did not have a full grasp of the case based its assessment on misunderstandings about the facts. • The reference to a previous counsel’s opinion is not relevant, as that was superseded by D and there’s no explanation as to why this was sought anyway only a few days after D had said there were prospects. • L’s assessment was another duplication of work depleting her indemnity limit. • As L was only instructed to assess prospects, this was for ARAG’s benefit and not hers, and they did not advance her case at all, so the costs of that should not go against her indemnity limit. • ARAG said it had instructed independent costs draftsman to assess the panel solicitors’ costs, but the costs draftsman told her they were acting for ARAG and could not talk to her. She should have input into the costs assessment. • The claim was struck out before any settlement could be negotiated and before ARAG told her the new panel firm had assessed the claim as not having reasonable prospects. She couldn’t settle the claim prior to this without ARAG’s agreement. • The claim was struck out because she could not comply with the procedural requirements set by the court, not because the case had no merit. • D should not be paid because they came off the record so quickly. • As the other side’s costs are so excessive, the usual rules on the indemnity limit

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should not apply; DAS caused costs to escalate because they did not act quickly to ensure a smooth handover to L when negotiations could have started much sooner. • The 2014 policy document that applies to her claim does not mention any requirement for a claim to have 51% prospect of success; the requirement is that cover will only apply ”as long as for civil claims, it is more likely than not that you and your family will recover damages (or obtain any other legal remedy which we have agreed to)...” One of our Investigators looked into the matter. She explained that we cannot consider the actions of the solicitors and can only consider whether ARAG has handling the insurance claim fairly. The Investigator said that ARAG was entitled to rely on the advice of the solicitors. She did not think ARAG had acted unfairly. It had authorised L to negotiate on her behalf and it was acting fairly in having the costs assessed. Mrs S does not accept the Investigator’s assessment. She has made a number of further points and provided some further information. Again, I have considered everything Mrs S has said and have summarised her main points below: • ARAG sought L’s opinion on prospects for its own purpose and notification that her cover was withdrawn was only provided after the claim was struck out and she could not therefore challenge the legal opinion. • ARAG had plenty of information about the case that should have caused it to raise issue with the assessment on prospects by L. But ARAG failed to address L’s misunderstandings on factual matters in the claims history; it suited ARAG to accept L’s assessment without question. • ARAG failed to update her directly about the cover, as it had said it would, and, unlike previous occasion, did not communicate the withdrawal of cover direct. • All this happened very late and due to ARAG’s delays, prospects were impacted and the other party took advantage of that. • She has evidence that contradicts ARAG’s claim that it agreed to pay L to negotiate a settlement and that it asked L to tell her that it was only funding the case to exit on best terms and that there were no prospects. • She has provided a screenshot of email authorising L to spend five hours to try and resolve dispute the dispute dated June 2024 – which was after the event - and an email asking L to tell her prospects were less than 51% and that it was only funding to resolve the matter on best terms, dated July 2024, also after the event and claim already struck out • Her policy is designed to cover a solicitor’s appointment to represent or act for her and L did not do this, so it should not be paid. L were not acting for her so should not be chargeable against the indemnity. • She had a phone call with ARAG in which it was discussed that the policy limit of £100,000 might not be applied, depending on what ARAG decides about the solicitors’ conduct of the case. • The delays by ARAG impacted her negotiating ability. In late 2023 the other side was on the back foot in the case but L was treating ARAG as the client. • She was in limbo with no solicitor to advise her, as ARAG had not authorised any funding for L to advise or represent her. Nor could she try to negotiate any type of settlement or withdraw from the case as the policy terms restricted this. And by that time, even if L thought there were prospects, they said they wouldn’t be able to get up to speed with the case. • D had continued to confirm prospects as being above 51% to ARAG throughout. • ARAG says it has an obligation to pay the panel solicitors but she should not be bound by agreements between ARAG and the panel solicitors that she was not aware of.

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Mrs S has said there are also later developments that she wishes to pursue separately. And, as she is aware, I cannot revisit issues addressed in my colleague’s recent final decision. For the avoidance of doubt this decision is addressing: 1. whether it was fair for ARAG to withdraw cover based on L’s assessment that the prospects of success were less than 51%. (I cannot deal with the reasons why L had to be instructed, whether it was reasonable to request L to review the prospects or the time taken by ARAG to ask L to do so, as those issues have been addressed in the previous final decision. I agree, however, that the assessment by L and whether it formed a proper assessment in March 2024 was not specifically addressed previously.) 2. Whether the panel solicitors, L and D, should be paid out of the indemnity limit; and 3. how the assessment of their costs should be achieved. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. This includes all the evidence and information recently sent by Mrs S, including her email of 1 April 2026. Prospects of Success Mrs S has said the policy in place in 2014, and which therefore applies to her 2015 claim, did not state there needs to be 51% chance of success but that it needs to be more likely than not. We consider ‘more likely than not’ means a 51% chance or more. I do not therefore consider that there has been any change to this requirement since her claim started. L was asked to assess the case. As stated, I cannot address Mrs S’s complaint about this, as it has already been determined. I have read L’s letter to Mrs S dated 27 March 2024 very carefully. Mrs S says the letter was L’s “initial thoughts, with many caveats, questions, an invitation to ask questions and re- review.” I don’t agree. While L did ask for some further information, in particular recent court directions, I do not consider there is anything in the letter that suggests that the matter was still under review. The letter starts by saying L does not think there are prospects, it then explains why in relation to each element of the claim and ends by saying “I will recommend to your insurer that they fund mediation in this matter but this is subject to the advice provided above”. The advice above was that if counsel had previously advised that there were no prospects of success (as indicated in D’s file) then the insurer might not fund mediation either. I think the letter makes reasonably clear that L did not think the case had reasonable prospects and that it was unlikely further funding would be provided by ARAG for the case to proceed to trial. L, however, said that given the previous issues with D, it would recommend that ARAG fund mediation to try and resolve the matter. Mrs S also says that ARAG failed to address L’s misunderstandings on factual matters in the claims history and should have recognised that this advice was flawed. I have seen no reliable evidence to support that the advice is flawed in any way. There is no comparable

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legal opinion that the case did in fact have reasonable prospects of success. And I would not expect ARAG, as an insurer, to analyse the advice in the way Mrs S has suggested it should; as this would extend beyond its remit as an insurer. Mrs S also says the policy allows for a second opinion. I can see no provision in the policy that would oblige ARAG to pay for another legal opinion after L’s advice in March 2024. I therefore consider that ARAG was entitled to withdraw funding, in light of this advice. ARAG’s actions after L’s advice Mrs S says that she was only told cover was withdrawn after the case had been struck out and that ARAG did not authorise any funding for L to resolve the case until 16 June 2024, which was also after the case was struck out. I have considered all the evidence provided to assess what happened. L told ARAG of its conclusions on 9 April 2024. It said it did not think the case had prospects and advised they try mediation and it was waiting to hear from Mrs S about this. L also asked for funding for mediation if Mrs S, and the other side, agreed. I can see that L chased ARAG for a response to this on 17 April 2024. ARAG replied on 22 April 2024, to say that said unlikely to agree to mediation given L’s advice but asked if a previous offer made by the other side was still available. A few days later, ARAG said to accept the offer if L thought it was reasonable, or to make a reasonable counteroffer but noted L had said waiting for instructions from Mrs S. On 13 May 2024, L told ARAG that it had received instructions from Mrs S about the counteroffer she wanted to make and asked for confirmation about funding. L chased this on 21 May 2024. The same day ARAG replied as follows: “I appreciate there are no longer prospects of success with the claim and that you are trying to get this matter resolved with the best possible outcome for [Mr and Mrs S] … In view of this, I can authorise an amount of time to try and get this resolved. I propose authorising the amount of 5 hours at the standard hourly rate for the claim”. This was reconfirmed on 16 June 2024 but I am satisfied that ARAG authorised this work on 21 May 2024. And I think it was implied before this, given that at end April 2024, ARAG was enquiring about any open offers and suggested that L could make a reasonable counteroffer. I think ARAG acted reasonably here. ARAG says that it thought L would therefore either be making a counteroffer or trying to withdraw on the best terms possible and is not at fault for this not happening. I can see that there was a delay in ARAG responding to some of L’s emails and time was of the essence, even from 21 May 2024, there was time before the case was struck out to make contact with the other side. And L was informed in late April 2024 it should accept the other side’s offer if it thought it was reasonable for make a reasonable counteroffer. Mrs S also says that she could not carry out any negotiations or withdraw the case without ARAG’s authority. I note that she made applications to the court in that period but also L was authorised to carry out these actions. I do not consider I can hold ARAG responsible for anything done or not done by L between April/May 2024 and the claim being struck out. I am also not persuaded that ARAG is responsible for the claim being struck out. There is no reliable evidence to support such as finding.

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ARAG didn’t confirm the funding position direct to Mrs L until July 2024. I agree it should have been made its position clear sooner than this but, as it had not completely withdrawn cover (as it had agreed to cover L to try and resolve the case) and Mrs S was aware it would not fund the case to trial, I do not think this delay impacted what happened with the case itself. I think the £300 compensation already paid for this delay in communication is reasonable Costs of L and D Mrs S says that whatever ARAG’s contractual obligations with the panel solicitors are, the policy provision have to be considered. She says that L did not represent her, it only acted for ARAG in assessing prospects, so L’s costs should not be counted against her indemnity. I do not agree. As D has stopped acting, the case had to be transferred to another solicitor. Any solicitor would want to conduct their own assessment of the case and this is in my opinion, reasonably considered to be part of the representation costs. I do not therefore consider that the reasonable costs of L’s assessment should not be counted toward the indemnity limit. Mrs S also says that D should not be paid due to its actions. However, I am not persuaded that ARAG can refuse to pay D for work they did reasonably carry out before coming off the record as acting for Mrs S, or that it should not go against her indemnity limit. Both L and D’s costs are to be assessed (which I will comment on further below) and I note that ARAG’s instructions to the costs draftsman stated that it should carefully assess the work D carried out and disbursements incurred and to report back to ARAG if there were any concerns before any offer for costs be made. So, it seems clear to me that ARAG intended to check D’s claim for costs carefully to make sure the amount can be justified. For the reasons given, I am not persuaded that the panel solicitors’ costs should not go against the indemnity limit. Limit of indemnity Mrs S has said that ARAG told her that the indemnity might not be limited to £100,000 and this could be a later complaint. I am determining if the costs of L and D count towards the indemnity limit. I am not making any finding about whether ARAG should disregard its usual limit. Although, as mentioned above, I do not consider that ARAG is responsible for the claim being struck out. Costs draftsman It is standard practice for legal costs to be assessed for reasonableness, not just in relation to the hourly rate but the time and actions taken before being paid. ARAG would usually do this internally but because of the concerns raised by Mrs S, it agreed to appoint an external law costs draftsmen to assess the panel solicitors’ costs and the other side’s costs. However, I understand that more recently this has been brought back to be dealt with in- house and Mrs S has informed us that ARAG told her to appoint costs draftsmen to deal with the adverse costs herself. I cannot make any finding about whether this was reasonable or not in this decision.

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As far as I am aware, the panel solicitors’ costs have not been assessed yet. Mrs S is adamant that she should be involved in the assessment and says she does not have the information about the cost claimed, so cannot assess them herself or challenge them. I’ve thought carefully about Mrs S’s points and can understand her concerns. As stated above, ARAG gave instruction to the external costs draftsmen to report back if there were any concerns about the actions and work done by D. I think it is reasonable to assume it would want the same scrutiny by its in-house costs team. I do not think there is any requirement for ARAG to appoint someone to represent Mrs S separately. However, as she was D’s client, she can ask D to provide her with details of the costs it is claiming. Until the costs are assessed, I do not consider there is any award or direction I can make. As mentioned, Mrs S is entitled to information from D about the costs it is claiming and once the costs have been assessed she has the option to appoint her own cost draftsman to challenge the assessment, if required. My final decision I do not uphold this complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs S and Mr S to accept or reject my decision before 25 May 2026. Harriet McCarthy Ombudsman

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