UK SMEs typically lose £13.6bn* each year from legal issues, and this cost is on the rise. Costs of a legal dispute can be seriously damaging for a business and can even prevent companies from trading. For example, if a business has a large contract but the main contractor refuses to pay, the effect on cash flow may mean the business is unable to afford solicitors fees to take legal action to recover the sums owed.
Litigation is time consuming and stressful for business managers and owners to deal with. Commercial Legal Expenses insurance can help take the strain, reducing the costs and time spent on legal disputes, so having this protection can make a real difference. The cover provided typically includes the following:**
Most legal expenses policies will include 24–7 helpline access to answer legal questions about any area of law.
The crisis has resulted in an increase in employment disputes with the end of the furlough scheme creating friction between employers and employees and sometimes resulting in redundancies. Disputes are also arising as lockdown restrictions are lifted and staff expect that flexible working practices implemented as emergency measures during the pandemic should become “business as usual”. The costs of defending employment disputes can be covered by a commercial legal expenses policy.
The recovery from the pandemic has resulted in difficulties and delays in supply chains, and in fulfilling contracts. These inevitably results in more legal disputes and can exacerbate the need to recover debts.
Increased levels of commercial property unoccupancy following the pandemic as flexible working becomes the norm, is may create disputes over rents and potentially litigation relating to nuisance and trespass.
Covering disputes and defence costs should your business receive for example notice of an enquiry into tax or VAT returns.
For example from a Health & Safety inspection which ends with a threat to prosecute your business.
Most legal expenses insurers provide policyholders with access to online guides, resources and / or news bulletins.
When a legal dispute that requires the intervention of a solicitor arises, legal expenses insurance provides cover for the reasonable costs incurred by the appointed solicitor, subject to the policy excess. Cover is usually provided on a “claims-made" basis, meaning the policy will provide cover for a legal dispute that is identified and reported to the insurer during the period of cover.
Legal expenses cover is arguably even more important for small businesses than larger corporations. Large businesses often have the funds to pay for their own legal support or even retain in-house legal staff, whereas SMEs rely on general high street solicitors that may not possess the necessary expertise to deal with the dispute faced.
Most legal expenses insurance not only provides the necessary legal support, it also offers access to specific expertise as insurers will have relationships with a panel law firms or an appropriately skilled in-house team who are equipped to deal with these more complex legal actions.
It important to notify your insurer as soon as you are aware of a potential claim. This allows the insurer to provide advice on how best to deal with a dispute. Following this advice can often prevent the dispute progressing to litigation or ensure that you have taken steps to maximise the chances of winning the case. In some cases, the policy will not cover the legal costs if you advise insurers of the potential claim after the stipulated notification period.
After receiving your notification, the insurer will assess the claim and the likelihood of it succeeding. Legal expenses policies usually say that any proposed legal action for which a policyholder makes a claim must have a ‘reasonable prospect of success’ which is generally interpreted as meaning a 51% or more chance of winning.
Like all insurance, there may be an excess under the policy, which is usually between £250 and £500 although in some instances there may be no excess where an insurer’s panel law firm is instructed.
There will also be financial limits for a single dispute, with the possibility of smaller inner limits for certain matters. The insurance will only provide cover for legal costs and not for damages that arise, such as a fine imposed following an HSE investigation or a sum awarded against a policyholder in a contract dispute. There can be exceptions where some compensatory cover is also available such as in an Employment Dispute where the policy may pick up non-contractual awards made against the employer.
There are many possible levels of legal expenses cover. Businesses must consider the nature of their business and the types of legal disputes they might face, then seek the level of cover for those potential eventualities. For example, any business employing staff faces a risk of an employment dispute and it’s important that the legal expenses policy includes this cover, whereas a sole trader wouldn’t need that type of cover. Talk to your GRP Group broker for advice and a quotation.
* Markel Law Bite statistics
** Note we have provided a general overview of legal expenses cover only. Different policies will have variations in limits, excesses, terms and conditions, and sections of cover available, so it is important to seek advice from your broker on appropriate cover for your needs and check terms and conditions of your policy.