Litigation and Insurance

5. Buying Cover

You can protect against a specific type of litigation by purchasing the appropriate insurance. For example, public liability insurance (see 1.3) covers not only the legal expenses of a public liability case, but also any damages that are awarded against you.

More general cover can be obtained through legal expenses insurance. This is bought by an increasing number of UK companies. In the case of smaller businesses, it may be included as part of a business insurance package.

The scope of cover offered by legal expenses policies varies.

5.1 The policy will set out what types of legal action are covered.

Most policies include cover for:

• Employment claims.
• Disputes with HMRC and the Contributions Office (including appeals). The accountancy costs you incur may also be covered.
• Claims made against a director for failing in his or her duties.

5.2 Legal expenses insurance is designed to protect your business should a dispute arise. Typically this means defending against a legal action and any related costs - such as court fees and legal advice.

However, many policies also cover the costs should you launch a legal action.

For example:

• Claims against suppliers or customers for breach of contract.
• Claims against former employees for breach of a restrictive covenant (eg to prevent local competition).
• Prosecution of vandals who damage your property.

5.3 Standard cover usually includes the cost, within limits, of employing solicitors (usually appointed by the insurer), barristers, expert witnesses, plus the court costs and related professional (eg accountancy) fees.

• In civil (ie not criminal) law cases, your policy should also cover your opponent's legal costs if they are awarded against you.
• Some awards made against you may also be covered (eg awards made by an employment tribunal).

5.4 In addition, most policies offer:

• 24-hour, 365-days-a-year legal helplines, for free initial advice on legal problems which your business encounters. The helpline may or may not be restricted to the types of legal action covered by the policy (see 5.1).
• Free legal reports. For example, employment manuals to help you draw up employment contracts and to avoid common employment law pitfalls.

5.5 It is important that you check:

• How much 'excess' you must pay towards each claim.
• The limit on the amount of cover. The legal costs for an expensive legal liability claim (or series of claims arising from a single incident) can exceed £1 million.

5.6 Always seek advice from an insurance professional, such as an insurance broker or intermediary. They can:

• Find you the right cover for the lowest price.
• Explain the extent of the cover and the terms and conditions that apply.