DRN-6261411

The complaint Mr B complains about the handling of costs relating to a legal opinion obtained as part of a claim made on an AmTrust Specialty Limited (AmTrust) legal expenses insurance policy. Mr B and Mr M are joint policyholders, and so refer this complaint to our service jointly. However, the claim was made by Mr B and all the correspondence with both AmTrust and our service has been from Mr B. I’ll therefore refer to Mr B within this decision, but where relevant this should be taken to include Mr M. What happened Mr B held a legal expenses insurance policy provided by AmTrust. The events leading to his complaint, and this decision are well known to both parties but I’ll outline the relevant points: • Mr B made a claim in relation to an employment dispute. • Legal opinions obtained by AmTrust concluded the proposed legal action didn’t have reasonable prospects of success and so the claim wasn’t covered. • Mr B complained, and AmTrust said that if he obtained his own opinion which confirmed the proceedings did have reasonable prospects of success, it would reconsider its position and refund the costs of that opinion. • During the course of further correspondence, AmTrust told Mr B the policy terms and conditions didn’t cover the cost he’d incur in obtaining his own legal opinion to challenge the earlier assessments. • Mr B obtained an assessment, paying the cost of this himself. He provided this to AmTrust as well as complaining about the handling of the claim. • Based on the opinion obtained by Mr B, AmTrust accepted cover for the claim. • AmTrust accepted it had made an error when it said the cost would be refunded, and so agreed to reimburse the cost Mr B had incurred. • AmTrust refunded the costs paid by Mr B, but the amount paid was deducted from the policy indemnity. • Mr B was unhappy about that and made a further complaint to AmTrust and then our service. • Our investigator didn’t believe it was fair for the cost to be deducted from the policy indemnity limit. She also asked AmTrust to pay £250 compensation to Mr B and interest on the cost of the legal assessment. • AmTrust disagreed with our investigator. Mr B believed the compensation paid by AmTrust should be higher. • As no agreement could be reached, the complaint has come to me to make a final decision. 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. The terms and conditions of Mr B’s policy say that there’s an indemnity limit of £10,000 for employment related disputes. Mr B has been concerned that by including the cost of the

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legal opinion he obtained, this limit will be exhausted sooner, leaving him liable for more costs than would otherwise be the case. It’s a common condition of legal expenses insurance policies that a claim needs to have reasonable prospects of success (in other words, that it’s more likely than not the legal action will be successful). In order to assess that, insurers will obtain an opinion from a legal professional about the merits of the proposed action. That’s what happened here. AmTrust obtained two opinions, the second being from a barrister, which both indicated Mr B’s proposed action didn’t have reasonable prospects of success. AmTrust declined cover, but in correspondence with Mr B agreed to reconsider the matter if he obtained an opinion from a barrister which did indicate his action was likely to be successful. That’s what I’d expect to have happened. During the course of that correspondence, it’s acknowledged that AmTrust initially said that in the event the assessment obtained by Mr B was positive, it would refund the costs he paid to obtain it. AmTrust admits it made an error when it said this, as the terms and conditions don’t have any provision for these costs to be refunded. Some legal expenses insurance policies do have conditions around the refunding of the costs incurred by policyholders in obtaining legal assessments, but the specific policy held by Mr B doesn’t. AmTrust, when it acknowledged it should refund Mr B for the legal assessment he obtained, said this amount would be deducted from the policy indemnity limit. I don’t agree that this was fair. AmTrust’s original position was that the policy had no cover at all for these costs, and says this remains the case but it has agreed to refund Mr B as a result of an error in its communication with him. As there’s no cover for these costs, it follows that any refund of them falls outside the policy indemnity. If the policy did provide cover for the costs, I might conclude that it’s reasonable to deduct them from the indemnity, but that isn’t what’s happened here. In any case, if the policy did provide cover, Mr B would have no complaint about AmTrust’s initial error and then refusal to pay the costs. If the policy doesn’t cover an expense an insurer is now agreeing to refund (as is the case here), I don’t think it’s reasonable to deduct that cost from the policy’s indemnity. I can’t say it’s fair for AmTrust to refuse the refund on the basis that the policy doesn’t cover the cost, but then deduct that cost from the £10,000 indemnity available to Mr B. The level of indemnity and what costs the policy will cover have a critical link (for example, a policy which covers a wider range of costs would be more likely to have a higher indemnity limit to reflect that), and so a cost that isn’t covered by the policy can’t reasonably be deducted from the indemnity. It seems to me that the indemnity limit is intended to cover the expenses and costs expressly stated as being covered by the terms and conditions of the policy. It wouldn’t be fair for Mr B to lose access to part of that indemnity limit because he was given inaccurate advice about what Amtrust would pay. I also think it’s fair for AmTrust to pay simple interest at a rate of 8% on the amount it refunded Mr B, from the date he paid it to the date of the refund. This is in line with our approach where a payment has been unreasonably delayed as a result of poor service. It reflects that Mr B should have had the funds and could have earned interest on the funds. AmTrust should have made the payment, even though the policy terms and conditions didn’t provide cover, as it had indicated (before Mr B incurred the cost) that it would do so if the

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assessment was positive. That created a reasonable expectation for Mr B and as such, interest should be paid to reflect the delay in the cost being paid. Our investigator also believed that AmTrust should pay £250 compensation to recognise the distress caused to Mr B. I think that’s a fair amount, although I’m aware Mr B believes the amount should be higher. I recognise that Mr B has received a refund, but that initially being told that the cost wouldn’t be refunded despite the previous advice would have been upsetting, and caused further inconvenience and correspondence with AmTrust. However, I’ve seen no evidence that Mr B’s proposed legal action was delayed or otherwise hindered by this, or that he was exposed to costs which would otherwise have been met by AmTrust. I also have to separate the distress caused by being given incorrect advice around the possibility of a refund (which has been put right in part by the refund being made) and the upset at being told that this refunded amount would be (as I’ve concluded, unfairly) deducted from the policy indemnity, as opposed to the distress caused by initially being told the claim wasn’t covered as it didn’t have reasonable prospects of success. Nothing I’ve seen suggests that based on the evidence available to AmTrust at the time, this was an unreasonable position for it to take, and so I can’t ask it to pay compensation for that even though the decision to cover the claim was subsequently changed. On balance, I think £250 compensation recognises that there has been a not insignificant amount of distress caused by AmTrust. However, the effect is limited by the resolution by way of the refund being paid and the lack of evidence that unreasonably deducting the amount from the policy indemnity had any detriment to Mr B or caused him any direct financial loss. My final decision I uphold this complaint. In order to put things right AmTrust Specialty Limited must: • Reinstate the cost of the assessment obtained by Mr B to the policy indemnity, so that this cost isn’t deducted from the indemnity limit. • Pay simple interest at a rate of 8% per year on the amount refunded to Mr B from the date he paid this to the date of settlement. • Pay £250 compensation. AmTrust Specialty Limited must pay this within 28 days of us telling it Mr and Mr M accept this decision. If it doesn’t, it must pay simple interest at a rate of 8% per year from that date to the date of settlement. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr B and Mr M to accept or reject my decision before 25 May 2026. Ben Williams Ombudsman

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