As the number of commercial claims going to court continues to decline, many believe this is because businesses aren’t pursuing claims because of the prohibitive costs of both court fees and legal advice. This means companies are increasingly either trying to deal with these issues themselves or not asserting their legal rights. Buying legal expenses insurance (LEI) can protect a business from the costs of pursuing or defending a claim in court, but this cover is not without its critics. In this article, we look at how LEI is designed to help companies combat their legal problems, some of the reasons it has received poor press in the past and how Abbey Legal is working to address these issues.
What is LEI?
LEI is insurance which covers the potential costs of legal action bought by or against the insured. A policy will:
- Cover the cost of legal advice and bringing or defending a court case – it does not cover the amount of damages that may be awarded in court, nor the liability to pay damages to others.
- Cover certain causes of action or defence – typically they will cover legal fees up to £100,000 and disputes relating to employees, contracts, statutory licenses, property, personal injury and tax matters.
- Usually contain a clause that allows the insurer to withdraw the funding for a legal action or defence if there is ‘no reasonable prospect of success’.
- Not cover a claim where legal proceedings have started before the insurance is purchased.
As with every type of insurance, there are many different policies on the market and the cover, exclusions and limitations vary with each one. Brokers and insurers must work with the buyer to make sure they understand what these are, especially if they are buying LEI for the first time or don’t have an in-depth knowledge of the insurance market.
Why should a company buy LEI?
SMEs make up over 99% of private sector businesses in the UK and 96% of 5.3 million businesses are micro-businesses employing less than 10 people. This number continues to grow every year. Legal support is essential for SMEs as they don’t have access to the in-house expertise (e.g. legal and HR) that would allow them to deal with issues quickly and confidently. Plus they don’t always have the time or funds to pursue a case.
This can lead to a DIY approach where they attempt to deal with a problem themselves, with the possible loss of reputation if it goes wrong, or they pay a law firm to handle it and end up with a large bill as they are inexperienced with the process of controlling the Solicitor. LEI can plug this legal funding gap by covering the costs of pursuing or defending legal action and the use of a claims team releases internal management time taken on the legal process.
For an average SME it seems to be a case of when, not if, a legal problem will arise. To combat this we believe companies should use lawyers in the same way they do accountants – as an investment in professional advice all year round. Our LEI cover includes access to legal advice from qualified lawyers and barristers 365 days a year so companies can take a more proactive approach to managing legal risk and prevent minor problems escalating into a dispute.
What are the challenges facing the LEI market?
Unfortunately there is an historic poor perception of LEI which can outweigh the positives of buying a policy. Corporate insurance buyers have told us:
- In the past has it been badly sold – the benefits were emphasised but the details of limitations and exclusions were hidden in the policy documents and not explained beforehand.
- There is no guarantee that LEI will cover the claim that arises – the insurer must be satisfied that case has reasonable or better-than-average chance of winning at any time (51%+) – and not just when the claim is first raised. If new evidence comes to light during proceedings which alter the chance of winning, then funding could be stopped. This has led to a poor reputation for declining claims.
- Decisions are taken on a financial basis. If a ‘reasonable’ settlement is offered then insurers can threaten to withdraw cover if the insured doesn’t accept it, but this figure may be lower than the compensation they would achieve in court.
- Sometimes there is disagreement over the choice of legal representation. The insurer chooses a lawyer to work on each case from a pre-appointed panel but this might not be the lawyer-of-choice for the insured.
We work in an Insurance culture where the customer journey and conduct environment places focus on addressing past policy misunderstandings. By creating our products in plain English language and highlighting the policy benefits in non-legal jargon promotes a greater proportion of claims being covered. We also believe that educating buyers about how the cover works and being transparent about policy details upfront is key to overcoming these concerns.
As LEI cover has developed, access to legal advice means earlier engagement on issues which may eventually become a claim. The chances of it then being covered are significantly improved and the decline rate is much lower for these cases. Take our calls for example – as our qualified lawyers are able to assist with issues early on, only as few as 1% of the LEI-related calls we receive actually proceed to litigation.
Differentiation through risk management advice
There are many ways legal advice can help protect a business, especially as it grows and the potential grounds for conflict increase. Staff, premises, goods, customers and competitors can all present challenges which advice from a solicitor can help solve, and shape policies and procedures going forward. What smaller businesses need from the legal system is easy access to advice, clear and understandable legal documents and affordable fees. LEI can provide this and the cost to use the advice line won’t be recognised as a claim.
Risk management advice can cover:
- Employment law
- Health & Safety legislation
- Queries on contracts with suppliers or customers
- Problems with property landlords or tenants
There is going to be a huge change in the UK’s legal environment post-Brexit. The Great Repeal Bill will bring thousands of EU laws into British statute and the CBI has estimated that Britain may need to set up domestic versions of as many as 34 EU regulatory agencies. Building closer relationships with legal teams will help understand the changes in their industry, and the necessary steps to remain compliant.
LEI buyer’s checklist
Once a company has made the decision to buy LEI, there are some common sense steps you can take to make sure you choose the right provider and get full value from the policy:
- Which areas will you need most legal advice on? Dealing with contracts? Employees? Match your need with a LEI provider who can help with these issues on their legal helplines and their panel of solicitors and understand the minimum legal qualifications of advisors.
- Ask how much experience the LEI provider has in your specific sector. Do they understand the regulatory law and exposures facing businesses in affinity areas, and will their policy extend to certain business critical legal situations?
- Read the small print. Compare claims limits and the types of disputes that are covered before you buy.
- Talk to your LEI insurer as soon as you think a legal dispute is brewing– early intervention is key to making sure the policy responds and that it is settled as quickly as possible.
- Ask how claims will be handled and how you are kept informed throughout the process. It is a misconception that there is no “freedom of choice”, but how the legal expenses provider chooses to operate with the freedom to choose a solicitor of your client’s choice will vary, and can be a source of frustration.
The Abbey Legal approach saves time and money
Although LEI has had a poor perception in the past, we believe that by working with brokers to educate buyers about how LEI works, and encouraging companies to use the legal advice helpline as part of their risk management toolkit, we can demonstrate the value that LEI can add to their business. Analysis of the calls to our legal advice line shows:
- Our qualified lawyers receive 800 calls a day. 85% of these are actually un-related to insured or insurable events, and instead involve our lawyers assisting SMEs who require legal assistance with everyday problems.
- Of those that are related to insured or insurable events, only as few as 1% actually proceed to litigation. So 99% of the time our advice saves clients time and money by avoiding litigation.
For SMEs that need qualified legal advice (which is at least four times a year according to the YouGov survey) we can provide pay as you go, fixed fee and fix stage options, avoiding any surprises with the final bill. And for companies who do want to try and manage the issue themselves, users of our online legal toolkit (elXtr) save more than £700 each year in equivalent legal fees from the guides and templates they can access.