Risk & Business Magazine Knight Archer Insurance Spring 2016 | Page 6

R & Legal Expense Insurance B What You Need to Know BY: KNIGHT ARCHER COMMERCIAL INSURANCE L egal disputes can disrupt any business, large or small, and the subsequent legal expenses can be crippling. In fact, a two-day civil trial can cost over $44,000. Even more alarming is the fact that 73 per cent of small businesses do not set aside enough funds to cover unplanned legal expenses. While traditional insurance policies—commercial general liability (CGL), directors and officers (D&O), employment practises liability (EPL) and errors and omissions (E&O)— generally cover some legal expenses, more and more Canadian businesses are turning to legal expense insurance (LEI) for added protection against exorbitant legal fees. What is Legal Expense Insurance? LEI is an insurance product designed to enable businesses to defend or pursue legal action against a third party, while limiting their financial exposure. Under LEI policies, policyholders pay an annual premium in exchange for legal advice, information, assistance and representation in certain defined situations, according to the terms of the policy. Covered legal costs generally include lawyers’ fees, court costs, witness fees, and adverse costs if a judge orders the policyholder to pay the other party’s legal fees. matter, including tax advice. This is meant to guide policyholders through tricky situations and prevent legal trouble before it occurs or escalates. Claims Process Although the claims procedures vary by carrier, the process typically involves four steps: 1. If a policyholder believes they have a claim, their initial step is to talk with an intake worker employed by the insurance carrier. The intake worker will ask the policyholder a series of questions about the potential claim and then arrange a time for an advice lawyer to contact them. 2. The advice lawyer will speak with the policyholder and offer general legal advice, gather information and recommend next steps for the specific circumstances. If the issue is indeed a potential claim under the terms of the policy, the claim will be forwarded to a claims team. 3. The claims team then reviews the case and determines whether it is an insured event. LEI policies cover common legal risks businesses may face, including the following: 4. If the claim is insurable, the case is then assigned to a lawyer specialized in the area of law relevant to the policyholder’s case. From this point forward, the policyholder deals directly with their assigned lawyer and is provided a claims handler to ensure their claim moves forward in an efficient and timely manner. • Breach of contract disputes for buying or selling goods and providing or obtaining services It should also be noted that carriers often require claims to be reported within a specified time period from the date of occurrence. • Debt collection related to the selling of goods or services General Exclusions • Employment disputes for breach of employment contract or employment legislation As with any insurance product, there are limitations of LEI. While LEI polices do cover legal expenses, they do not cover financial settlements or judgements. Common LEI exclusions include the following: • Defence for investigation and/or prosecution for business-related criminal or occupational health and safety offences • Statutory licence protection when a business licence is suspended, cancelled or not renewed • Any claim resulting from an act which is wilfully committed, and the results of which are consciously intended by the policyholder • Pursuing legal action for trespass, nuisance or damages to the business’s property • Claims that are part of a class action proceeding • Pursuing legal action for bodily injury caused by a third party to employees while on the job • Legal costs incurred in a jurisdiction outside of Canada • Income or sales tax audits or appeals Legal Advice Hotlines As an added benefit, when a business purchases an LEI policy, they often gain access to a legal advice helpline, which is staffed by attorneys and other experts. Businesses can use this helpline to ask questions regarding any business-related legal 6 SPRING 2016 • Claims reported after the deadline set by the policy • Any claim that is fraudulent, exaggerated or dishonest To discuss all of your coverage options and to learn if LEI is right for your business, please contact your Knight Archer Insurance Ltd. representative today.