As a business, you are far more likely to face legal action than the average individual. If a claim is brought against you and you end up in court, you’re facing lawyer’s fees, court fees and potentially a compensation order.
Whether it’s an employment tribunal, a dissatisfied customer or a dispute with a key supplier over a commercial contract, legal protection insurance can cover the company for legal representation and all associated legal costs.
Commercial legal protection insurance is also sometimes known as legal expenses insurance. From a technical definition point of view, its principal aim is to help companies access the legal advice and expertise they need to deal with legal issues. If things do get out of hand, legal expenses insurance can help you pursue a claim or fund your defence if a claim is brought against you or your employees.
Extent of Policy Coverage
Business legal protection insurance can cover your company against a variety of claims. Typically, a policy will cover you for:
- Employment Disputes – There are hundreds of reasons why an employee, or ex-employee, could take you to an employment tribunal. The most common case is when the employee believes they’ve been the victim of unfair dismissal
- Trespass and Damaged Property – For example, let’s say you own a delivery company. Some trespassers have accessed your business yard and caused damage to some of your vehicles. The Crown Prosecution Service didn’t proceed with prosecution despite the trespassers admitting fault. In this scenario, civil action is your only option to recover the costs, which can be a massive expense for a small company. Legal protection cover can help you foot the bill for taking the trespassers to court.
- Debt Recovery – If a contractor owes your company money and you have tried to recover it for an extended period, civil action may be your only option to recover the debt. Legal protection insurance can take the pressure off, and help you appoint a solicitor and take the contractor to court. Typically, an insurance policy will only cover debt recovery if the amount in dispute is over a specified limit, which is usually around £200
- Compliance and Regulation – Matters of this kind include cover against legal costs from appeals against health and safety or food safety enforcement notices, defence in disputes in connection with the Data Protection Act and representation at a formal investigation or disciplinary hearing by a trade association.
On top of these situations, commercial legal expenses insurance can cover legal defence, property protection, compensation awards, bodily injury and tax protection. Some providers may give you the option to add features such as statutory license appeals to your policy, and many policies can provide assistance following an insured incident to repair reputational damage and mitigate bad press.
Common Expenses Types Covered
Legal expenses insurance typically pays for:
- the appointment of lawyers, solicitors and barrister’s legal fees
- court fees
- expert witness costs
- the costs of the opposing side if you are unsuccessful
- some compensation payouts, if you receive an order to compensate the other party.
A key benefit of most policies is access to expert legal and tax advice, which usually comes for free with the policy. You will often have access to these helplines at any time during your insurance term, which can help you to mitigate any risks and resolve problems before they reach the courts.
Key Exclusions
The precise coverage of a commercial legal expenses insurance policy will vary from provider to provider. Typically, however, legal expenses cover excludes:
- legal costs paid by you before the insurer accepted your claim
- civil claims where the ‘reasonable prospects of success’ are evaluated as being less than 51%
- any disputes between the insured and insurer
- fines or penalties from a court or tribunal
- allegations against the policyholder or employee relating to assault, violence, dishonesty, money laundering, or dealing in illegal drugs
- disputes between policyholders or associated companies or partners.
Bear in mind that you usually cannot claim for issues that arose before the date your cover began. In some cases, mostly for employment, contract and debt claims, you may be unable to claim protection for any disputes arising within the first 90 or 180 days of the policy.
Assessing Scope, Size and Purchase Options
Most policies tend to offer a fixed, standard limit. In some cases, you may have a choice of cover levels. In this case, how much coverage you choose should depend on the size and nature of your business, as the cost of legal action can vary hugely depending on the nature of the problem.
Most providers will cover you for up to £100,000 for legal costs, though you can sometimes extend this limit if you are considered a ‘high risk’ business.
More often than not, legal expenses insurance comes as an optional add-on to other insurance policies. Insurers may offer you legal protection as part of a commercial business insurance package, complete with public liability cover, professional indemnity insurance or employers’ liability insurance. A few providers will offer standalone protection if you already have other forms of insurance in place.
Final Thoughts + FAQs
Even the most careful business owners can find themselves facing legal action. Companies come into daily contact with all kinds of legal documents and processes, whether it’s drawing up a new investment contract, dismissing an employee or dealing with a claim brought against you. For companies that don’t have the resources or capacity to keep legal experts in-house, seeking the right legal advice can be stressful, costly and leave your company at a disadvantage.
Legal protection insurance can provide you with access to expert legal advice at any time, helping you mitigate problems and contain disputes before they escalate. Should the worst happen, legal expenses cover can protect you against quickly mounting legal fees, preventing your company from taking a financial hit. Still have questions? Find answers to common queries related to business legal expenses insurance, below.
- What is before the event or after the event basis? – Traditionally, legal expenses insurance is taken out on a ‘before the event’ basis. Policies of this kind can cover the legal costs of a future legal dispute which happens during the period of the policy. Alternatively, some insurance providers offer policies which can be taken out ‘after the event’. In this case, businesses are seeking financial protection against the risk of losing legal action. After the event insurance covers you against liability for the legal fees of the other side.
- Can I choose my own solicitor or law firm? – Typically, an insurance provider will appoint a lawyer from one of their preferred firms. There are several instances where you may have the right to choose your own lawyer, such as if there’s a conflict of interest. If you do choose your own lawyer, bear in mind that your insurance provider will usually only pay them the same amount that they would pay their preferred lawyers, leaving you to cover the rest. Typically, this is around £100 an hour.
- Is it a UK commercial legal requirement? – No, legal protection insurance is not a legal obligation. It is simply designed to safeguard businesses against unexpected legal proceedings, and save companies from having to foot the bill for high legal costs.
- Can I choose my own lawyer if I have business legal expenses insurance? Typically, an insurance provider will appoint a lawyer from one of their preferred firms. There are several instances where you may have the right to choose your own lawyer, such as if there’s a conflict of interest. If you do choose your own lawyer, bear in mind that your insurance provider will usually only pay them the same amount that they would pay their preferred lawyers, leaving you to cover the rest. Typically, this is around £100 an hour.
