Legal expense insurance is protection that is intended to cover legal costs and expenses attributed to defending your company during a lawsuit. This is especially targeted toward some claims relating to employment disputes, legal defence, contract disputes & debt recovery, statutory license protection, property protection, bodily injury and tax protection. (e.g. a former employee files a lawsuit against your company for wrongful dismissal. The intent is for this policy is to cover the cost of legal expenses).
Why Do Businesses Require Legal Expense Insurance?
If you run a business, then you definitely should have legal expense insurance. While it’s something that has just recently gained regard in North America, it’s something that has been offered in Europe for years.
On May 23rd 2009, David Chen, the owner of the Lucky Moose Food Mart in Toronto was charged with kidnapping, carrying a dangerous weapon (a boxcutter), assault, and forcible confinement. He and 2 accomplices had beaten a man who they had been monitoring for repeatedly shoplifting in his store. In 2010, Mr. Chen was not found guilty and the charges were dropped. However, clearing his name and covering legal fees was very expensive. This is an example of someone who clearly would have benefited from legal expense insurance.
What Does Legal Expense Insurance Cover?
There are a number of coverages under legal expense insurance for businesses. While the entire coverage will depend on the insurance provider, below are the type of lawsuits that are applicable to legal expense insurance:
- Legal Defence
This is intended to cover your business’ legal costs associated with defending your legal rights. (e.g. hiring a barrister or solicitor to help you take legal action against a customer).
- Contract Disputes and Debt Recovery
This type of coverage is intended to cover your business’ legal costs for pursuing or defending your legal rights during a dispute relating to an agreement or an alleged agreement which has been entered by you or on your behalf for either (1) selling or buying goods and/or; (2) providing or obtaining services. (e.g. hiring a barrister or solicitor to help you take legal action to recover any debt from customers who haven’t responded to your communications).
- Statutory licence protection
This is intended to cover your business’ legal costs in representing you in appealing to the relevant statutory or regulatory authority, court, or tribunal following an event which results in a licensing or regulatory authority suspending, or altering the terms of, or refusing to renew, or cancelling your licence to conduct your business. (e.g. you feel your fishing license was wrongfully revoked and you’d like to take legal action to challenge with an appeal).
- Property Protection
The intention is to cover your business’ legal costs when you decide to pursue your legal rights in a civil action that is related to physical property that you own or are largely responsible for. (e.g. While you were offsite, a commercial vehicle truck was vandalized. You want to take legal action—legal expense insurance may cover the costs).
- Bodily Injury
This is intended to pay any injured person’s legal costs, when pursuing their legal rights following a specific or sudden accident which causes their death, bodily injury or illness. (e.g. an employee of yours is severely injured in an accident offsite as a result of faulty equipment provided by a company other than yours).
- Tax Protection
This type of protection is meant to cover your business’ legal costs in respect to a tax appeal or tax audit that could be related to either (1) any liability for income tax (GST, PST or HST arising from your business) and/or (2) any payroll deductions compliance by your business.
Legal fees can be costly. Protect yourself with legal expense insurance for your business—it may help cover and minimize them.
Other Commonly Considered Business Insurance Policies That Are Coupled With Legal Expense Insurance
While legal expense insurance is meant to cover your business’ legal costs and expenses, you’ll need to consider some other common policies. Here’s a list of additional protection policies that other commercial businesses typically bundle with their professional liability insurance to get the most out of their protection:
- Commercial General Liability Insurance (CGL)
This is the foundational liability insurance that any business should own at minimum. It coverts third-party lawsuits (bodily injury and property damage). (e.g. A client comes to a meeting at your office, slip and hurt themselves. They sue you because they’re injured).
- Business Interruption
If your business site or office is affected by a flood that destroys your work space, business interruption insurance may cover the costs associated with loss of income due to operations put to a halt. (e.g. you’re a construction contractor who is working on a residential project. An unexpected storm hits and you’re unable to work on your project).
- Loss Income Insurance
This will pay for specific continuing expenses, including payroll, taxes or mortgage payments by covering losses that occur. (e.g. a natural disaster or other type of emergency may cause a flood, which could lead to a loss of business income).
- Cyber Insurance
If your customer information is compromised and their personal information is used against them (e.g. fraud activity where their I.D. is used), your customer can sue you for the cost of the damages associated. The added protection is a smart move, especially since the number of cyber attacks continue to grow, costing businesses lucrative amounts of money.
- Directors & Officers Insurance (D&O)
Directors & Officers Insurance protects your company against “wrongful acts” such as errors, omissions, breach of duty, neglect and misleading statements made on behalf of the company.
- Commercial Property Insurance
Any property that you own which is used for your business which is damaged or stolen may be covered. (e.g. One of the air duct units in your paralegal legal services office is damaged and needs to be replaced).
- Contents Insurance
This may cover the damage to, or loss of, your company assets and possessions. (e.g. You take your business laptop away with you while on vacation and it gets stolen).
How Much Can Legal Expense Insurance Cost For Your Business?
The cost of owning legal expense insurance will depend on the size of your business. In most cases, it can cost something like $3/day. It’s also good to note that the cost of the loss or legal fees associated with a lawsuit will certainly be higher.
To best understand the value of legal expense insurance, you may want to look at your business holistically and identify any potential situations where legal expenses would be required. For example, if you run a warehouse, the risks posed to you as a business owner from employee injuries is very high. While WSIB in Ontario may cover work-related injuries, legal expense insurance may cover you for any legal fees associated if an employee decides to take you to court for other reasons (e.g. an employment dispute where they feel that the the injury warrants a longer short-term leave than granted).
UNDERSTANDING LAWYERS FEES
- The average cost of a two day trial is $25,517
- The average cost of a five day trial is $56,963
- The average cost of a seven day trial is $78,737
- Brand new lawyers charge $211 per hour on average
- Lawyers with five years of experience charge $280 per hour on average
- Lawyers called to the bar before 1996 charge an average of $448 per hour
What Kind Of Information Do I Need To Get a Quote For Legal Expense Insurance?
Some wise advice? To save yourself some time, it’s is a good idea to do some digging and gather some pertinent business information about you or the your company before requesting a quote.
Another great idea is to put together a list of questions beforehand so that you don’t forget what to ask once you get to speak to a broker about your options for professional liability insurance coverage. Think about the possible risks that you or your company can face when operating your business.
Here’s a list of several types of information about your business that you’ll need to gather in preparation for your search:
- Name of your company
- Address (and locations if applicable)
- Revenue—this is a driving factor for your policy premium
- Your company structure—(i.e. sole proprietorship, corporation, partnership, joint venture or franchise?)
- The date that your company was established
- Is your company registered in Canada?
- What is the number of employees working for your company?
- Do your employ subcontractors?
- Privacy—do you collect private information (e.g. customer data, financial information). What measures do you take to protect this information?
Having this information will make requesting a quote easy and fast—whether it’s online, over the phone or in person, and will likely prompt more questions to ask!
Don’t be stuck with costly legal fees. Protect your business with legal expense insurance.
Summary/Recap—What Have We Learned About Legal Expense Insurance
- Legal expense insurance is protection that is intended to cover legal costs and expenses attributed to defending your company during a lawsuit.
- This is especially targeted toward some claims relating to employment disputes, legal defence, contract disputes & debt recovery, statutory license protection, property protection, bodily injury and tax protection. (e.g. a former employee files a lawsuit against your company for wrongful dismissal. This policy will cover the cost of legal expenses).
- There are several things that are covered under legal expense insurance: employee disputes, legal defence, contract disputes and debt recovery, statutory license protection, property protection, bodily injury and tax protection.
- Legal expense insurance covers the legal costs but should certainly be coupled with other types of protection coverage. For example, Commercial General Liability Insurance (CGL), Professional Liability Insurance (PLI), Business Interruption (BI), Cyber Insurance, Directors & Officers (D&O), Commercial Property and Contents Insurance.
- The cost of legal expense insurance will certainly depend on the size of your business along with risks associated. Typically, it can cost approximately $3/day.
- You can save time and prepare yourself to get a quote by gathering specific business information that you’ll need to provide (whether it be through getting a free quote online or speaking to a licensed insurance broker).
Legal expense insurance is intended to cover legal costs that your business may face. Get your FREE quote online!
At Zensurance, we make getting a commercial business insurance quote easy. Our hassle-free, easy to use and no-jargon tool walks you through the entire process.