ARAG plc · DRN-5992466

The complaint Mr M complains that ARAG plc (ARAG) unfairly declined two claims he made on a legal expenses insurance policy. What happened Mr M holds a legal expenses insurance policy provided by ARAG. He’s made two claims on the policy, both related to a property he owns. One relates to legal action he seeks to take against an electrical contractor, while the other is against a property management agency. The details of the underlying disputes with these third parties aren’t relevant to my decision, which is considering whether ARAG acted reasonably when it declined cover for these claims. ARAG declined cover because it considered neither claim had reasonable prospects of success, which is a requirement of the policy. Mr M complained to ARAG, and then our service. Our investigator thought that ARAG’s decision to decline the second claim (the one against the property management agency) was reasonable. However, she considered that the decision in relation to the first claim (against the electrical contractor) should be reconsidered, as the assessment ARAG had relied on wasn’t prepared or reviewed by a suitably qualified person. She said a further assessment should be carried out. Mr M didn’t accept this outcome, as he considered that ARAG’s decision to decline the claims had caused him significant losses, including the closure of his business and an ongoing dispute with a mortgage provider. Mr M’s complaint was therefore referred to me to make a final decision. While I was reviewing the case, ARAG provided evidence of a review of the original assessment which had been carried out by a solicitor. They agreed with the original assessment, for the same reasons. I therefore considered that, on that basis, ARAG could reasonably rely on the original assessment and so it was fair to decline cover for the claim. However, I thought that the review should have been completed at the time of the original assessment, and so while the decision in relation to cover was fair, there had been a delay in confirming this. I therefore considered ARAG should pay £100 compensation to recognise this. I explained this to both parties. Mr M rejected my proposal, saying that ARAG was responsible for very significant losses and distress to him. He also questioned whether the solicitor had suitable qualifications and experience to make a proper assessment. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable

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in the circumstances of this complaint. While both claims have been considered independently of each other, they’ve both been declined for the same reason – that neither has reasonable prospects of success. I’ll consider each decision to decline cover separately, but the relevant policy condition, and our approach to these sorts of complaints is the same. I’ll therefore outline these first, and then consider how the policy condition and our approach applies to each claim. Mr M has made a number of points in submissions to our service which I won’t address. This is because they relate to the merits of his various legal actions, and why he considers they should be successful. I mean no disrespect by not referring to these, but can only comment on the actions of ARAG and, specifically, whether the decisions taken to decline cover for his claims were fair. I’ve reviewed all of the comments made by Mr M, but can only address matters in our jurisdiction and so will only concern myself with those. The relevant condition of Mr M’s insurance policy says that cover for legal expenses is provided as long as “Prospects of success exist for the duration of the claim.” The policy defines “Prospects of success” as “In respect of all civil legal proceedings, that it is always more likely than not (at least 51%) that an insured person will (1) Recover damages or obtain any other legal remedy which we have agreed to (2) Make a successful defence (3) Make a successful appeal or defence of an appeal Prospects of success will be assessed by us on an appointed representative on our behalf. In respect of criminal legal proceedings, there is no requirement for there to be prospects of a successful outcome, however for appeals the prospects must be at least 51%” These types of condition are common in legal expenses insurance policies, and aren’t inherently unfair or onerous on policyholders. I know Mr M considers the term to be unfair, but I don’t agree. It wouldn’t be reasonable to expect an insurer to fund legal proceedings which have been assessed as being unlikely to be successful. While an individual would be free to continue to pursue a case which has been considered to have a less than 50% likelihood of success, I don’t think it could be considered a prudent use of an insurer’s funds to do so. Our approach to complaints about insurers referring to these types of conditions when declining claims is well established and I’m aware it’s been shared with Mr M previously. We usually say it’s reasonable for an insurer to rely on an assessment detailing the prospects of success provided the assessment: - Appropriately explains the reasons why the claim has (or doesn’t have ) reasonable prospects of success. - Doesn’t contain material errors of fact which would be obvious to a layperson. - Has been prepared (or supervised and reviewed) by an appropriately qualified person. We say this because we don’t expect an insurer to be a legal expert, and so it’s fair to defer to the opinion of someone with the required level of expertise as to whether a legal action would be likely to succeed. I know Mr M doesn’t agree with this position. He considers the binary application of a 51% likelihood of success is inconsistent with how courts consider prospects of success, pointing to The Civil Legal Aid (Merits Criteria) Regulations 2013. I assume from this that he believes ARAG should adopt a similar approach.

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I’m satisfied that the relevant condition is clear here that in order for a claim to be accepted, it needs to have at least a 51% likelihood of success. I accept that the regulations Mr M has pointed to give categories for the likelihood of success, based on percentages. I also accept that a claim which is considered to have a less than 50% likelihood of success could be successful. The assessment isn’t a guarantee that the court will find in the way that’s been assessed. However, what’s relevant here is the policy condition. That says that for ARAG to fund the legal action, it needs to have at least a 51% chance of success. That’s the test that ARAG applied in its assessment of the claim, and I’m satisfied it’s a reasonable position to take and is in line with the common approach to legal expenses insurance claims. My role here isn’t to assess whether the conclusions reached in a prospects assessment are correct, or I agree with them. I need to consider whether it was fair for ARAG to rely on the assessments, taking into account the points I’ve outlined above. That means I’m not in a position to, and won’t, comment on the conclusions reached in these assessments. I understand Mr M feels very strongly that the conclusions are wrong, but my role isn’t to make that assessment. Mr M made two claims, and on both occasions ARAG said that the assessments carried out had concluded the respective claims didn’t have reasonable prospects of success. With the first claim, relating to the proposed action against the electrical contractor, I’m satisfied that the assessment is appropriately reasoned, and explains why the claim (in the author’s opinion) doesn’t enjoy reasonable prospects of success. I haven’t been pointed to any particular or obvious factual errors in the assessment. While Mr M disagrees with the conclusion, he hasn’t identified where the facts on which the assessment is based are incorrect. What has been accepted is that the initial assessment was completed by a paralegal, and we weren’t initially provided with any evidence that it had been reviewed or supervised by a suitably qualified solicitor, which we’d expect to have seen. Since our initial view of the complaint, ARAG has obtained a review of that assessment from a solicitor who has been so qualified since 2015. They’ve done so and confirmed they agree with the conclusions reached and the reasons given. ARAG therefore takes the view that it’s reasonable for it to rely on the assessment and decline cover. I agree with that position, which is in line with our approach to such matters. Mr M appears to believe a solicitor giving their opinion should have particular expertise in landlord and tenancy, health and safety and/or electrical engineering matters. I don’t agree. The obligation of the solicitor isn’t to consider the actions of the third parties, but to assess whether based on the information available, a legal action against the electrical contractor (as this relates only to the first claim) would be likely to succeed. I’m satisfied the solicitor has suitable qualifications and expertise to reach that conclusion. With regards to the second claim, for the proposed action against the property management agency, I’m satisfied ARAG could reasonably rely on the assessment. It was appropriately reasoned, prepared by a properly qualified person and I haven’t been pointed to any material errors of fact. Notwithstanding that the decisions to decline cover for both claims were, in my view, reasonable, I’m satisfied that ARAG should have clarified and asked questions about the first claim’s prospects assessment’s when it was originally provided. It’s accepted the original assessment was authored by a paralegal, but in order for ARAG to rely on it, I think it should

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have asked for confirmation from a solicitor or legally qualified supervisor that the assessment was accurate, as I’ve outlined above. That clarification has now been obtained, but there was an unnecessary delay in this being confirmed. To recognise this, I think ARAG should pay £100 compensation to Mr M. That reflects, in my opinion, the impact of the delay in confirming that the assessment could be reasonably relied on but the important point that the losses Mr M attributes to ARAG aren’t something it’s liable for. I assume there’s no dispute that the main impact on Mr M is that the claims have been declined. However, the decisions to decline the claims are reasonable, and so I can’t and don’t hold ARAG liable for the impact of those decisions. I understand how upsetting it has been, and the consequences that have occurred, after ARAG declined to cover Mr M’s legal expenses. Unfortunately, I’ve concluded that ARAG’s actions were fair in the circumstances and so I can’t ask ARAG to pay compensation for that, or put cover in place for his legal expenses. I appreciate Mr M strongly disagrees with the decisions reached by ARAG that his claims should be declined. He retains the option to obtain his own legal opinion from a similarly qualified solicitor based on the same evidence. If such opinions suggest that there are reasonable prospects of success, they should be provided to ARAG to review and consider their next steps. However, based on the assessments which are available, I’m satisfied ARAG acted reasonably when it declined the second claim and that in light of the further review of the opinion on the first claim, the decision to decline cover for that claim was also fair. The review that’s now been carried out should have been done initially, and so ARAG should pay £100 compensation for the reasons I’ve outlined. My final decision I uphold Mr M’s complaint in part. To put things right, ARAG plc must pay Mr M £100 compensation. It must pay this amount within 28 days of us telling it Mr M accepts this decision. If it doesn’t, it must pay simple interest at a rate of 8% on this amount from that date to the date of final settlement. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr M to accept or reject my decision before 16 April 2026. Ben Williams Ombudsman

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