The cost of taking or defending legal action could place a considerable financial strain on your business. Legal expenses insurance (LEI) covers legal costs such as solicitors’ fees and expenses, the cost of barristers and expert witnesses, court costs and opponent’s costs if awarded against you in civil cases.
Types of dispute normally covered include contractual and employment matters, for example claims for unfair dismissal; racial or sexual discrimination, the recovery of bad debts, and disputes with a landlord other than those relating to rent or service charge (particularly relevant for small businesses when dealing with a large corporation or local authority landlord).
The policy cover will also include the cost of employing specialist accountants and lawyers to protect your rights, for example if your business is subject to investigations on tax or VAT matters. Most policies will offer a confidential telephone legal advisory service to answer commercial legal enquiries.
The vast majority of LEI policies are sold ‘before the event’, to cover the consequences of an event which has not yet occurred. However, there is a very small part of the market which is sold ‘after the event’, to cover legal expenses in a case where the disputed event has already happened, although the expenses of the court case resulting from it have yet to be incurred. It is likely to be available only where the chances of winning the case are high, in which case the insurer is likely to be able to recover the costs from the other side.