What do my Liability Insurances Cover?
Your current insurances are there to protect you from costs/damages that you may be asked to pay by customers, suppliers, employees or the general public. These arise through various laws (such as the requirement to pay compensation in the event of an injury to an employee) or in some cases through customer or supplier contracts where you are required to take on certain liabilities (e.g. a customer requiring that you are liable for any injury as a result of a defect in the goods you have supplied).
As part of these insurances, the insurer will cover the costs of a lawyer to defend a liability claim against you. The purpose of this is to protect your organisation (and therefore the insurer!) from having to pay damages, protect your reputation and if damages are payable, to reduce the cost of these wherever possible. If the lawyer cannot successfully defend these allegations against you, the insurance will pay the damages claimed against you.
The legal costs covered under your liability insurances are limited to defending the liability claim against you. Therefore a lawyer appointed by your Workman’s Compensation insurer for example, will only defend you from a claim from an injured employee, but nothing more.
What does Legal Expenses Insurances Cover?
Legal Expenses Insurance also covers the cost of lawyers, however the legal costs covered are those which are not covered by your liability insurances and arise from multiple areas, not just liability for damages following injury or the requirement to pay costs/damages.
Legal Expenses Insurance is available for claims arising from contractual disputes, employment matters, property problems, licencing issues and many more. For example, your professional indemnity policy may cover the cost of a professional negligence/error claim against you, but it certainly would not fund a lawyer to enforce a debt that you were owed by a non-paying customer.
Does the legal expenses insurance cover all legal costs i may have?
It is unlikely to cover all the possible legal expenditure your business might face, not least some of this expenditure would not be insurable under any type of policy e.g. the legal work required when acquiring a another company.
However our cover is designed to cater for the main risks you may face, such as being in dispute with a customer, supplier, landlord, tenant or employee. It also protects you from costs of defending criminal matters and licencing issues.
In addition to the insurance, the policy includes complimentary access to telephone legal advice from qualified lawyers.
Does this mean there is duplication of cover?
Generally not, however there are some areas of a legal expenses policy where cover may be similar or overlap with some other liability insurances. This is not intended, but is merely a result of certain types of Legal Expenses Insurance cover being sold as a package which covers the main business risks that organisations face. Generally speaking, in the areas where this does occasionally occur, the overlap is very minor and doesn’t impact on either policy’s coverage or the cost of either policy. Where this is the case, the Legal Expenses policy can be adapted to remove any unnecessary area of cover.
Legal expenses insurance is not a replacement for your liability policies but rather an additional product to ensure your wider business legal risks are protected.
Why does my liability insurer not include Legal Expenses in my other insurance policies?
Most liability insurers may risk a conflict of interest in providing Legal Expenses Insurance and in some areas of the world, such as in Europe, this is not allowed due to EU regulations.
To avoid this situation it is common for insurers (who wish to give extra legal protection to their clients) to outsource their Legal Expenses section to a specialist provider. This ensures claims are handled by a separate entity, avoiding these conflicts of interest.
Can I use the Legal Expenses Insurance to persue a claim?
Yes - there are a number of areas in the policy that cover both pursuit and defence of claims. This is unlike almost any other type of insurance available, as it gives the policyholder the ability to instigate a claim. For example, you have dispute with a customer over the non-payment of an invoice. In this scenario there would be no cover under a liability insurance as no claim has been made against you. A Legal Expenses Insurance policy however would fund this type of claim.
By way of a further example, you could have a dispute with a tenant in your property. If you believe the tenant is in breach of the terms and conditions of their lease, you have legal right to take action against them. They have not made a claim against you so no liability policy will fund such a claim.
Why does my business need legal expenses insurance?
In today’s increasingly competitive world, disputes and resultant legal action are on the rise. Australia is no exception and there are a number of factors influencing the pressure of legal budgets and litigation spending:
Rising legal costs are preventing access to justice. Legal fees have reached a level whereby businesses are having to consider whether or not participate in actions even where they have a strong case. SME’s have been hit especially hard by these rises and there are regular scenarios where business owners have had to make the tough decision not to enforce their legal rights, simply because the cost of enforcement has been too great.
Given this inability to protect their business in the event of a dispute, SME’s are losing confidence when it comes to trading with larger entities. Often they are forced to the back of the queue for payments, with large corporates safe in the knowledge they hold the power. To restore the balance and give SME’s the confidence to enter contracts with major customers and suppliers, they need the reassurance that if things do wrong they can enforce their position. It is not about encouraging them into taking legal action, but merely the peace of mind that they have the ability to act should it be necessary.
In addition to dealing with disputes, the SME of today is faced with a huge burden of keeping up to date with business legislation and regulatory requirements. Even the most straightforward of businesses are subject to employment, health and safety, data protection and many other industry-specific regulatory requirements. Compliance often has to be achieved without the benefit of in-house expertise, risking penalties due to lack of knowledge or having to pay for external advice and consultation.
With the world and local economy faltering, pressure inevitably comes down on budgets which are not considered everyday essentials to keep the business running. It can often be a false economy to remove budgets entirely, however through insurance the replacement of a legal budget with a smaller legal expenses insurance premium allows capital to be released, whilst maintaining access to funds should a dispute arise.
Whilst a slowing economy does not encourage people to turn to litigation, it does force businesses to protect themselves should revenue be lost due to non-payment of customer invoices or disputes with suppliers. Clearly spending further funds on expensive legal consultation and possible further action is not attractive when margins are already squeezed.
Can I have some further information?
We want to ensure you have confidence that it will meet your needs. If you would like some further information, please contact your insurance broker in the first instance. They can provide you with the following documents:
Policy summary
This gives you an easy-to-understand summary of the features and benefits of the cover. It also highlights the important exclusions of the policy.
Policy wording
If you would like to have more details of the cover, a full policy wording is available. Our wording is written in plain English and we hope you will find it easy to read and understand.
Claims examples
In order to help explain how the cover works and the type of issues that are covered, we have prepared some real life case scenarios for you.
Statement of fact/Request for cover
If you would like to get a quote, your insurance broker will ask you to complete our request for cover form. This is a simple one page document to gather some basic information about your business and confirm the details under which your insurance quote will be provided.