Even the most conscientious entrepreneurs can struggle to keep their business fully compliant with the law. Business owners are continually encountering legal agreements of all kinds: drawing up and signing supplier contracts, hiring and dismissing employees. If an employee, supplier or another third party wants to make a claim against your company, this can mean a costly lawsuit and a potentially devastating compensation claim. Alternatively, your company may lack the funds to pursue a claim in their interests.
This is where commercial legal protection insurance steps in, sometimes known as legal expenses insurance. Its principal aim is to help companies access the legal advice and expertise they need to deal with legal issues (insurance policies tend to include legal helplines where you can speak to in-house lawyers to help you resolve commercial disputes). 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.
This helpful guide takes you through all you need to know about legal protection insurance through the following sections:
- What is legal protection insurance?
- What type of claims does legal protection insurance cover?
- What costs are covered by legal expenses insurance policies?
- How much legal expenses cover do I need?
- How to find a legal expenses insurance provider
- Final thoughts & FAQs.
What is commercial legal protection insurance?
Commercial legal protection insurance exists to help business policyholders with legal advice, as well as the costs involved should they find themselves in a legal dispute or if they want to bring a case themselves.
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. Typically, businesses choose to add this kind of cover to their existing business insurance policy or package.
What type of claims does legal protection insurance cover?
Business legal protection insurance can cover your company against a variety of claims. Typically, a policy will cover you for:
- Employment disputes (with an employee or ex-employee): 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.
What costs are covered by legal expenses insurance policies?
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.
Are there any 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.
Before the event or after the event
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.
How much legal protection cover do I need?
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.
How to find a legal expenses insurance provider
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.
Buying from insurers directly
A simple option is to approach insurance providers directly. Many insurers advertise their legal expenses cover online, where you can enter your details and generate a quote. If you already have other forms of business insurance in place, it can be worth approaching your providers directly to see if they can add legal protection cover on to your existing policies. Combining policies may also save you some money.
Going through a broker
Using a broker is an especially good idea for companies with specific requirements, requests or high-risk business activities, as their industry knowledge and expertise can help you find the right cover for you.
As legal expenses insurance often comes as an added extra rather than as a standalone policy, it can be easier to compare deals through a broker, as prices for additional cover can be difficult to find online. Brokers often have access to better deals than customers do when approaching insurers directly, so you may be able to save some money going through a broker, too.
Using online comparison sites
Comparison websites can be a helpful starting point, as you can view the benefits of each provider all in one place. These sites all enable you to search for different types of insurance products. Their results display the offers available from providers, with most sites allowing you to filter your search by the level of cover you need or specific cover features you require.
As legal expenses insurance isn’t always a standalone cover option, you may miss some reputable providers if you use a comparison website.
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.
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.
Is legal expenses insurance a 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.
What’s the difference between professional indemnity insurance and legal expenses insurance?
Many people mistakenly believe that legal expenses insurance covers the legal costs of a professional indemnity insurance claim. If you have professional indemnity insurance, this policy can cover your defence in a claim against work carried out by your business. Legal expenses insurance pays for claims arising from commercial disputes. – Neeed clearer definition to?
What other insurance does my company need?
If you have any employees, you must take out employers’ liability insurance. Other forms of insurance to consider are public liability insurance, product liability insurance and professional indemnity insurance.
Public liability cover can protect you against claims of injury or damage made by third-parties. Product liability cover is similar, but typically covers claims arising from a product you have given away or sold. Professional indemnity insurance can cover you against claims made against you resulting from work you have carried out. Many insurance providers offer comprehensive business insurance packages, featuring all or some of the above, onto which you can typically add legal protection insurance as an extra feature.