If your business ends up in legal hot water, business legal expenses insurance (LEI) can give you access to an expert legal team and pay your legal defence costs in certain situations. With the CBI reporting that the cost to defend an employment tribunal was £8,500 in 2010, and the FSB reporting that an HMRC tax investigation costs around £5,000 in accountancy fees, you can see how valuable legal expenses cover can be. Below we explain what's covered and give examples to help you decide if you need it or not.
- What is Business Legal Expenses Insurance?
- What does Business Legal Expenses Insurance cover?
- Who needs Business Legal Expenses Insurance?
What is Business Legal Costs Insurance?
Business legal expenses cover provides access to expert legal advice and cover for legal expenses for certain situations where your business might find itself at the end of a lawsuit or investigation—even if the claims are unjustified. It can assist when claims are brought against you and also when you want to pursue action against another person or business.
- 24/7 Legal Advice Helpline: Access to expert legal and tax advice
- Legal expenses: Cover for legal costs like solicitor fees and court costs
This type of business insurance is also referred to as business legal protection insurance, commercial legal expenses or business legal costs cover. Whatever you call it, this coverage can be purchased independently but it's frequently offered as an add-on coverage to public liability insurance or may be included in your overall business insurance package.
What does Business Legal Expenses Insurance Cover?
Business legal expenses insurance covers a wide range of disputes, investigations, lawsuits and claims that can arise through the day-to-day running of your business. In fact, a business is vulnerable to legal exposure from many sides: their employees, suppliers, customers, premises and even their tax accounts. Here are examples of situations that could be covered by a legal expenses insurance policy:
Legal Expenses Examples
- Employment disputes: An employee claims you owe them paid annual leave because they are a 'worker' not 'self employed'. (e.g., Pimlico Plumbers Ltd and another V Smith)
- HMRC tax enquiries and disputes: You receive a written notice of enquiry from HM Revenue & Customs to carry out a Corporation Tax compliance check of your whole tax return.
- Health & Safety inspection: An HSE inspection ends with a threat to prosecute the business.
- Contract disputes: A supplier has failed to make a large delivery to you within the agreed-upon time frame and you consequently lose a client.
- Debt recovery: A client refuses to pay you for your services.
- Property protection: Your have a dispute with a neighbor because they restrict access to your premises.
- Identity theft protection: A director becomes the victim of unlawful use of their personal identity.
- Statutory licence appeal: A licensing authority refuses to renew your licence.
- Jury service and court attendance: Cover for an insured person's net salary while they're performing jury service.
Employee tribunals alone cover a very wide range of issues, including unfair dismissal, equal pay act, breach of contract, age discrimination, disability discrimination, health and safety, parental and maternity leave, etc. and claims can come from past, present or prospective employees. You can see real-life examples of employment tribunal decisions at the Gov.uk site.
Some plans might also offer help with PR advice to help deal with a crisis situation that results in negative publicity for your company, or civil actions brought under the Data Protection Act. The actual cover you get from a business legal expenses insurance policy will vary depending on the insurer, so be sure to check the details of a policy before you buy it to make sure it covers what you need.
Legal Expenses Claim Limits
Business legal expenses cover doesn't provide you with an unlimited pot of money to use in your defence. The typical amount of cover on a business legal expenses policy is £100,000 per claim (max £1 million per year). That said, coverage can vary by insurer and specialist cover can be purchased with a different amount to suit the needs of your business.
What's Not Covered
Business legal expenses insurance doesn't cover all types of legal costs your business might incur—there are many types of claims for which you need targeted cover. For example, employee illness or injury claims would only be covered by an employers' liability policy; third party injury, illness or damage claims would generally fall under public liability or product liability; and complaints about your work being negligent or not meeting expectations would be covered under professional indemnity.
Business legal expenses insurance also typically doesn't pay for compensation payments that you're required to pay as a result of a successful claim against your company. While the terms will vary by insurer, here are some common exclusions on a business legal expenses insurance policy:
- Compensation payments you are required to pay
- Legal expenses falling under the realm of other types of business insurance
- Issues that started before the policy starts
- Legal costs incurred before agreed upon with your insurer
- Situations without a reasonable chance of success (e.g., at least 51%)
Who Needs Business Legal Expenses Cover?
While any type of company could potentially benefit from legal expenses insurance, it is primarily aimed at small and medium size businesses (SMEs) and sole traders who might struggle to pay for or even find a suitable legal team to assist with a potential legal issue. It's meant to help these businesses through a time that is expensive, stressful and time consuming to handle, and can round out your set of business insurance coverages.
- Sole traders
Average Cost of Business Legal Expenses Insurance
Business legal expenses is typically a relatively cheap type of business insurance, with policies available from around £6 a month or £72 a year.
Business Legal Costs Statistics
Statistics on how many business are sued each year are hard to come by, but we can look at data for one common type of claim that's covered by a legal expenses policy: employment disputes. We analysed data from the Gov.uk website and found that in 2018/19 there were 121,075 employment tribunal claims accepted. This means there is 1 employment tribunal claim for every 34.7 companies each year in the UK.
And according to a study by the Confederation of British Industry, the average cost to defend an employment tribunal was around £8,500 in 2010, but this number is surely higher now.
|Business Legal Employment Tribunal Expenses Statistics|
|Average Cost to Defend an Employment Tribunal||£8,500|
|Employment Tribunal Claims Accepted 2018/19||121,075|
|Number of Companies in the UK||4.2 million|
|Year-on-year Increase in Single Employment Tribunal (ET) Caseload||28%|
While this Citizen's Advice guide to employment tribunals is aimed at employees, it can also be useful for an employer to read if they want to learn more about the employment tribunal process.
- Employment tribunal statistics: Gov.uk
- Company statistics: Gov.uk
- Cost of defending an employment tribunal: 11th European Conference on Management Leadership and Governance