ECJ ruling on legal expenses; Austrian law

The recent ruling in Stark v DAS Osterreichische Allgemeine Rechtsschutversicerung AG by the ECJ, whilst addressing a question of Austrian law, is relevant to all involved in legal expenses insurance.

Two points of Austrian law are relevant:

1. Austrian law provides that legal expenses insurance contracts may state that a policyholder may only select lawyers who have their chambers in the geographical location where judicial proceedings are at first instance to be conducted; and

2. In Austria lawyers in certain ancillary services in civil law disputes are remunerated by a flat fee. That fee is doubled if the service is provided outside of the lawyer’s particular geographical location.

Mr Stark was the policyholder under a legal expenses policy provided by DAS. In 24.03.2006 he brought an employment claim against his former employer in the Labour and Social Security Court in Vienna. Mr Stark lived approximately 600km away from Vienna and instructed a lawyer local to him.

Mr Stark made a claim under his legal expenses policy and DAS paid his lawyer EUR 5,782.19 by reference to the single flat rate not the double flat rate. DAS also made an application seeking an order that Mr Stark pay the premium of EUR 211.46 due under the policy. Mr Stark made a counter-claim for EUR 3,000, being the balance between the single flat fee DAS had paid and the double flat fee which his lawyer charged Mr Stark and which was not paid by DAS.

Mr Stark ultimately asked the European Court of Justice to decide whether the restriction placed on legal expenses policyholders by Austrian law was contrary to Article 4(1) of Directive 87/344/EEC which guarantees freedom of choice of lawyer to legal expenses policyholders.

The ECJ ruled that the question at issue was not, in fact, a question pertaining to the freedom of choice of lawyer, but instead on the scope of cover available under an insurance policy and that such a question is not subject to the Directive. It noted that Mr Stark had been able to freely select his lawyer but that did not mean that the insurer was required to reimburse all the lawyer’s fees, regardless of geographical location.

The Court did note however that this should be “on condition that that freedom is not rendered meaningless. That would be the case if the restriction imposed on the payment of those costs were to render de facto impossible a reasonable choice of representative by the insured person.”