Legal expenses insurance and wrongful refusal of cover
Insured pays out of pocket after wrongful refusal by ARAG and Klaverblad
Two cases show what happens when a legal expenses insurer wrongfully refuses cover. In both, the insured had no choice but to instruct their own lawyer — and in both, the court and the Disputes Committee held that the insurer must bear those costs.
In the first case, ARAG refused to carry out the policy's dispute resolution procedure properly in an employment dispute. The insured conducted the proceedings at their own expense, incurring lawyer's fees of just over €11,000. The Arnhem-Leeuwarden Court of Appeal qualified the failure to carry out the dispute resolution procedure as an attributable failure to perform the insurance contract. The cost of the privately instructed lawyer falls to ARAG as damages.
In the second case, Klaverblad refused cover for an employment dispute, arguing that the conflict already existed before the policy's commencement date. The consumer instructed a lawyer herself and reached a settlement agreement with the employer. The total lawyer's fees came to €3,690.50. The Kifid Disputes Committee held that the refusal of cover was wrongful: the assessment report did not show that, when taking out the insurance, the consumer could have expected her employer to terminate the employment contract.
Default arises from the refusal — without a notice of default
The central question in both cases was the same: must the insurer also reimburse costs the insured had already incurred before the court or the Disputes Committee overturned the refusal of cover? The answer is yes. The ruling of the Disputes Committee or the court is declaratory in nature: it establishes that the insured was entitled to cover from the outset. An insurer that turns out to be in the wrong has committed an attributable failure to perform from the moment of the refusal (Section 6:74 DCC).
In the Klaverblad case, Kifid went a step further. Although the consumer had not sent a notice of default, the committee held that default had arisen by operation of law under Section 6:83(c) DCC. The email in which Klaverblad refused cover was a communication showing that the insurer would not perform. Default therefore arose on the date of that email — 3 December 2021 — and not only at the Kifid ruling more than a year later.
The Arnhem-Leeuwarden Court of Appeal applied the same logic in the ARAG case. ARAG had itself written that, in the event of an incorrect assessment, "the costs incurred for which the client is insured will be reimbursed, in so far as these are normal, reasonable and customary." The court adopted this starting point and held that the lawyer's fees qualify for reimbursement as damages — not as a direct policy payout.
Apart from these cases, European case law also provides a basis. The right to a free choice of lawyer arises under Article 200(4) of Solvency II "from the moment at which the insured is entitled to the insurer's intervention." The Court of Justice held in Sneller/DAS (C-442/12) that the insurer may not make this right dependent on its own decision to outsource a case, and in Vlaamse Balies (C-667/18) that the right already applies at preparatory stages that may lead to proceedings. An insurer that refuses cover and thereby forces the insured to instruct a lawyer cannot later rely on the absence of consent.
What to do if the legal expenses insurer refuses cover?
Anyone faced with a refusal of cover need not sit still. Start the dispute resolution procedure under Section 4:68 of the Financial Supervision Act (Wft) and record the refusal in writing. Where procedural deadlines require it, instruct your own lawyer — where the refusal is wrongful, those costs fall to the insurer. Keep all correspondence and invoices carefully: the insurer is entitled to have the reasonableness of the amount reviewed afterwards.
More on disputes with insurers in the Consumer Litigation section and the publication on ex officio review of consumer contracts.
Frequently asked questions
Must an insured first send a notice of default before the insurer is in default?
Not always. An explicit refusal of cover counts as a communication showing that the insurer will not perform. Under Section 6:83(c) DCC, default then arises by operation of law, without any notice of default being required. That is what Kifid held in the Klaverblad case (GC 2023-0011A).
What if the dispute resolution procedure turns out negatively for the insured?
If the binding advice is negative, the insured may continue the proceedings at their own expense. The major insurers (DAS, ARAG, Achmea) apply a standard "reimburse after all" clause: if the insured is ultimately proved right, the reasonable costs are reimbursed afterwards up to the policy limit.
Which costs qualify for reimbursement?
The lawyer's fees must be reasonable and necessary and fall within the policy limit. The insurer may have the amount reviewed afterwards. In the ARAG case, the court appointed an expert to assess whether the €11,362.50 charged was "normal, customary and reasonable" — the criterion from the policy conditions.
ECLI:NL:GHARL:2022:121, Arnhem-Leeuwarden Court of Appeal, 11 January 2022 | ECLI:NL:GHARL:2022:4205, Arnhem-Leeuwarden Court of Appeal, 24 May 2022 | Kifid GC 2023-0011A, 5 January 2023
Cited case law
Courts of Appeal: ECLI:NL:GHARL:2022:121 · ECLI:NL:GHARL:2022:4205