Companies at risk

Trade unions, staff associations and professional bodies will often purchase commercial legal expenses insurance (LEI) cover through a group scheme that allows them to offer legal help as a benefit of membership. Cover is provided for the benefit of the individual members, and the policy limit determined by their total number.

Most package policies offer LEI as an optional section. This type of cover will typically be bought by hotels and pubs (who account for approximately 10% of the total premiums), shops, offices and other small businesses, doctors and dentists’ surgeries, start-ups, sports clubs and affinity groups.

Those more likely to purchase LEI as a stand alone policy would include manufacturers, traders, property owners, professional advisers and management consultants, property developers, and landlords. Stand alone policy wordings are usually tailored to meet the individual needs of the client and premiums are higher as a result.

Small companies are increasingly likely to purchase LEI cover, either as part of a package or as a stand-alone, due to a growing awareness of their relatively high exposure compared with larger companies that are better able to stay abreast of relevant legislation and may have their own legal resources in house.

Larger organisations, however, are also very often keen to protect their bottom line against the impact of legal costs and expenses. Those who are particularly anxious about the prospect of legal action from employees tend to choose cover such as employment practices liability (EPL), a separate topic in itself.

Cover requirements for group scheme policies are essentially similar to those of personal LEI policies.

Members will require cover against the costs of disputes relating to personal injury, sale of goods and services, for example, alleged negligent medical treatment, faulty workmanship, such as for builders or plumbers, employment issues and property such as boundary disputes, noise and neighbours.

SME clients require LEI to protect their businesses against legal disputes arising from alleged failings in their responsibilities as an employer, property owner, manufacturer or trader. This might include:

• Property disputes, such as over freehold or leasehold premises

• Landlord–tenant disputes over rent, repairs and maintenance

• Disputes with neighbours and those over damage caused to property by a third party

• Disputes over alleged infringement or abuse of intellectual property (patents and copyright)

• Libel and slander

• Tax and VAT issues

• Alleged breaches of the Data Protection Act.

Some companies offer personal LEI as an employee benefit. They may pay the premium or simply arrange the contract (at a rate reflecting its group participation) with premiums paid by each employee who opts in.

Some companies rely on a statutory licence to trade. If this is revoked, not renewed, altered or suspended they may be obliged to mount some kind of legal action to prevent closure. LEI can help to fund their defence of any prosecution (though it will not normally reimburse any fines or penalties), or their pursuit of disputes over contractual matters, for example, late delivery or late completion.

Significant legal costs can also arise from debt recovery proceedings. Cases involving company vehicles or drivers are also a consideration here. Pursuing uninsured loss recoveries is one obvious example. Others might include vehicle contract disputes such as vehicle leases,or criminal prosecutions for alleged offences such as driving without due care and attention.

Health and safety is another source of costly legal actions. This could include alleged breaches of health and safety regulations, appealing health and safety enforcement notices or cases involving workplace accidents.

Another area where LEI can be valuable is in meeting costs and expenses incurred in recovering damages following injury or damage to property caused by a third party. Provided this is specifically included in the policy wording, LEI can also be of value in covering the legal costs and expenses and accountants’ fees that can result from an

in-depth Revenue and Customs tax inspection.

But employment issues are perhaps the main reason why companies value LEI. Claims can arise from:

• Disputes over employment contracts,

• Part-time workers’ pay and conditions

• Bonuses and discretionary pay

• Maternity rights and parental leave

• Redundancy and severance pay

• Recruitment and retirement issues

• Disciplinary actions

• Alleged unfair and or wrongful dismissal

• Alleged breach of discrimination laws, for example, gender, race, disability, religious belief or, since October 2006, age

compliance with the minimum wage directive

• Bullying and harassment at work

• Stress and other types of industrial disease such as, asbestosis, repetitive strain injury, and vibration white finger

• Accident or fatal injuries to employees.

An employee who is successful at an employment tribunal will be awarded both a basic award (of up to £8,700) and a compensatory award (of up to £58,400). There is no maximum on compensation awards for discrimination. A commercial LEI policy (or indeed an EPL policy) will typically pay not just the company’s legal expenses but also the compensation award.

There are of course some legal expenses for which commercial LEI policies should not be expected to provide cover – for example those incurred in drawing up a complex contract.

LEI is intended to cover unexpected legal costs, generally relating to some kind of dispute. Whereas conventional insurance makes a payment for a claim, LEI covers costs incurred in pursuing or defending a claim, such as, appointing solicitors, barristers or expert witnesses. IT