With insurance available against almost every form of business, personal or health risk, it is perhaps surprising that insurance against legal disputes is not widely known about and nor is there significant current demand for it. This is perhaps even more surprising since the essence of most insurance is to protect against legal losses and risks.
With legal dispute insurance this generally falls into 2 categories known as :-
- Before the event insurance – which covers against legal disputes before they arise
- After the event insurance – taken out once a dispute is known about
The essence of the insurance is not to cover the losses incurred by, say, a breach of contract claim, so that it pays out if there is a dispute. Instead, the cover is for the costs of litigation. A significant difference generally between before and after the event policies is that with before the event insurance cover may well include your own legal expenses as well as the other party’s (if you lose or are ordered to pay costs of the other party along the way) whereas with after the event insurance, this usually only covers against opponent’s costs, so you will need to fund your own legal fees or find a lawyer who may take on the case on a no-win-no-fee (often fine for personal injury cases which are quite predictable in outcome but commercial disputes are a whole different kettle of fish) or some form of hybrid basis.
What Areas Does Legal Expenses Insurance Cover?
Before considering the types of claims that are covered it is worth pointing out that legal expense insurance is likely to have a cap on the amount that can be claimed, usually up to £100,000.
The type of claims covered by legal expenses insurance will vary depending on the nature of the policy, the price of the premium (or the add on to the premium) and the product it is being taken out with.
Personal Legal Expenses Insurance
For example, car insurance policies which include legal expenses insurance often only cover claims that arise out of ownership of the vehicle and is therefore likely to be limited to either bringing or defending claims against or from third parties. Whereas legal expenses insurance tied to home insurance policies is likely to cover proceedings in relation to the insured’s home, employment, death or personal injury and claims relating to the supply and sale of goods and services.
In addition some legal expenses insurance policies will also cover the cost of tax disputes and legal document preparation such as wills or other contracts.
Commercial Legal Expenses Insurance
Commercial legal expenses insurance is likely to cover some of the following types of claims:
- Disputes with employees
- Health and safety claims
- Tax disputes
- Criminal prosecution
- Statutory licence disputes
- Property disputes and protection
- Data protection
- Personal injury
- Contractual claims / debt recover
Policies sometimes list the types of claims that are not covered and this should be noted. For example, car insurance policies often do not extend to family law disputes whilst neither car insurance nor home insurance policies are likely to cover defamation claims. The exclusions should be considered with just as much care and attention as the inclusions.
Difficulties Associated with Legal Expenses Insurance
The first hurdle that a litigant will face before being able to rely on their legal expenses insurance to fund their litigation is that the insurer has to be satisfied that you have a reasonable prospect of winning the case, not only at the outset of the matter but also as the matter progresses.
The other problem with legal expenses insurance is that insurers will often insist that the policy holder uses a solicitor that is a member of their panel. Policy holders should be aware that they are entitled to choose their own legal representative as was established in a multiple of cases in 2011.
Problems do however start to arise where insurance companies insist on paying the hourly rate of the solicitors on their panel which is likely to be less than the market rate; therefore your preferred solicitor may be unable to work on this basis. Some insurers may also refuse to back the claim if the amount you are claiming is likely to be less than your legal costs.
Another problem with legal expenses insurance is that if you get an offer to settle the insurance company will expect you to settle the case provided the offer is reasonable. In such circumstances, if the claimant continues with the case he or she may have to bear the costs themselves.
A prudent policy holder will ensure that they have read the terms and condition of the policy before taking it out to ensure they are satisfied and it is suitable for their needs.