The purpose of legal expenses insurance is to cover the legal fees charged by a lawyer representing the insured in an insurance event. In Finland, legal expenses insurance is typically an accessory to liability, home, corporate or another insurance product and covers the legal expenses of disputes connected to the activities specified in the insurance policy.
The right to coverage arises when there is a dispute in an insurance event. A dispute refers to the claim (or charges) which have been disputed.
A starting point is that legal expenses insurance indemnifies only insurance events occurring during the validity of the insurance. However, typically there is an exception – the so-called 'two-year rule' – which means that the insurance policy must have been valid for at least two years at the time of the insurance event and the particular matter which the dispute is based on must have been happened during the validity of that insurance. In calculating the validity period, the uninterrupted validity of all other legal expenses insurance purchased from other insurance companies and having equivalent coverage must also be considered. Although this softens the effect of the two-year rule, it has been particularly problematic in the housing market when terminating an old home insurance policy and purchasing a new one, as there can be no interruption between the validity of policies.
The validity of legal expenses insurance can also be problematic when ending business activities. A businessperson may terminate its legal expenses insurance (which may have been valid for decades) as an unnecessary cost without understanding that it will no longer cover later disputes with a basis in the business activities. This happened to a pharmacist who terminated his legal expenses insurance in June 2011 when he retired and ended his business activities. In April 2012 the pharmacist received a workers' compensation claim from a former employee. Having received the claim, the pharmacist went to the insurer to discuss whether his insurance covered the claim. The pharmacist believed that the insurance would cover the matter when employee's claim was rejected. However, in December 2011 the insurer rejected the claim because the event had occurred after the validity of the insurance.
The pharmacist contested the insurer's decision and sought a recommended resolution from the Insurance Complaints Board. In November 2013 the board held that the insurer's decision was correct and in accordance with the insurance condition – which is not unusual or unexpected when compared with other legal expenses insurance in the market. The board also found that there was no exceptional heavy grounds to make the insurance condition reasonable, as the threshold is very high.
The pharmacist was not satisfied and sued the insurer on the grounds that the insurance condition denying coverage was unreasonable and therefore legal expenses must be covered. The pharmacist also claimed for damages, as the employment dispute would otherwise have been settled had the insurer's employee not caused unnecessary and extra legal expenses by providing incorrect information about the insurance compensation. Both the Satakunta District Court and the Vaasa Appeal Court dismissed the claims.
On December 2 2016 the Vaasa Appeal Court held that the insurance condition was not unreasonable. According to the court, it was possible that in pursuance of termination of the insurance in 2011 the pharmacist misunderstood the coverage. However, when the insurance contract was concluded the pharmacist had been provided with the insurance conditions, which were not exceptional. Further, the pharmacist was an businessperson, not a consumer. After termination of the insurance, there was no further obligation to pay premiums. Consequently, the pharmacist could not have been aware of the effect of terminating the insurance.
Regarding the secondary claim, the court found that regardless of what information the insurer's employee had provided in the discussion following the insurance event, possible inaccurate information cannot make an insurer liable according to Section 9.2 of the Insurance Contracts Act, which states:
"Correspondingly, the provision contained in Subsection 1 also applies to situations where incomplete, incorrect or misleading information given on the insurance during its validity can be considered to have affected the policyholder's action. This does not, however, apply to information given by the insurer or its representative on compensation or benefits payable after the occurrence of an insured event."
Consequently, when the information was provided following the insured event, the court dismissed the claim for damages as it was not based on law.
The decision should be appealable if the Supreme Court grants leave to appeal.
For further information on this topic please contact Matti Komonen at HPP Attorneys Ltd by telephone (+358 9 474 2207) or email ([email protected]). The HPP Attorneys Ltd website can be accessed at www.hpp.fi.
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