Legal Costs for Commercial Legal Expenses Insurance
For many years, the insurance industry has tried but usually not been very successful, in offering a broad Commercial Legal Expenses Insurance Policy. This is one that will provide coverage for Business risks that require either the pursuit or defence of matters that are not otherwise covered by insurance.
There are various reasons why it has not been successful as a product. There were reasons such as claims vastly exceeded the premium that was generated. This usually caused premiums to increase so that insurers were able to try and make a profit, but this just meant that less people bought the product.
Another reason was that most businesses were only really concerned with the things they might do wrong rather than what the customers and suppliers might do wrong. Therefore if sued for causing bodily injury or property damage to another person, you would claim from your Public or Products Liability policy and that policy would pay for the legal costs to defend the matter.
If you gave wrong advice, the Professional Indemnity policy responded. If you breached statutes, such as the Fair Work Act, Workplace Health and Safety Laws, the Tax Act or Corporations Law; then you could obtain legal representation under a Management Liability policy.
With the cost of litigation today, the cost of claims were only going to increase more. As a result, the Legal Expenses product disappeared from the market.
The pursuit side had limitations. Having such a resource was good for recovering debts but could be very costly if pursuing other matters such as contractual disputes. Australia is also considered the second most litigious country in the world.
However, now, a few insurers are offering additional cover for Commercial Legal Expenses if you have placed cover with them for Public / Products Liability or Professional Indemnity. Lloyds of London continue to offer these policies in various forms. It covers a variety of different legal exposures not normally covered by traditional liability insurance policies.
It differs from Management Liability in that it is intended for smaller companies and sole traders which often do not feel they need the “D&O” type cover and the higher limits of indemnity.
... Premiums start from as little as $200 for companies with annual turnovers under $500,000 ...
These policies have a modest but handy limit of $100,000 any one claim and $250,000 in the annual aggregate. Premiums start from as little as $200 for companies with annual turnovers under $500,000. They do exclude the higher risk areas of Employment Practices, Contract and Discrimination but the policy can be extended to include these but it does add considerably to the cost of the policy. Some can be included in more specific “standalone” covers.
Other features include ...
- A legal advice email service for legal issues affecting your business activity. It will:
- Respond to alleged breaches of the Privacy Act 1988. The pursuit of a third party relating to physical damage to property owned by the insured which causes uninsured loss.
- The pursuit or defence of a dispute with a landlord under a lease or tenancy agreement.
- The defence of criminal prosecutions and appeals against notices under the Occupational Health and Safety Act, the Competition and Consumer Act and similar legislation.
- Investigations by the ATO and disputes relating to Fringe Benefits Tax.
- Appeals in respect of the suspension, revocation, alteration or refusal to renew a statutory licence.
- Attendance expenses associated with claims by employee against third parties for personal injury.
- An inquiry, investigation or other proceedings initiated by a regulatory authority.
Some of our clients will be offered this cover with certain insurers we deal with providing the turnover is under $500,000. If you do have this opportunity, we believe it is worth the investment.
For others, we certainly welcome further discussion about alternative solutions to these risks that may suit.