Although stand-alone legal expenses insurance can be purchased for as little as £20-£30 a year, many people already have it without being aware of it. We look at this type of policy with information about:
- What legal expenses insurance is
- What the most common legal issues are
- The most common reasons for exclusions
- Under what circumstances an insurer would approve a claim
- Alternatives to legal expenses insurance
If you were involved in a civil case, would you be able to afford the fees? Adding up the cost of a solicitor or barrister plus expert reports and court fees plus the other side’s fees if you were to lose, the expenses can soon mount up. In this article we discuss the need for legal expenses insurance. Often sold as part of other policies, we explain what it covers and what it doesn’t. We inform you when insurance providers would agree to proceed with a case. Finally, are there any alternatives to legal expenses insurance?
What is legal expenses insurance?
If you wished to sue someone or were sued yourself, legal expenses insurance would cover all the court costs associated with a civil case – with the sole exception of any compensation which is awarded against you. Legal expenses insurance is often sold as part of another insurance policy. Both motor insurance and home insurance often include this cover as standard. Motor insurance covers the costs of taking legal action as a result of events which arise from the use or ownership of a vehicle such as suing a third party for, or defending yourself against accusations of, negligence.
Home contents/buildings insurance policies include similar cover in case you are accused of negligence arising from inadequate building maintenance or in disagreements with neighbours concerning trespassing or boundary disputes.
Apart from all your legal costs, this insurance cover also gives you support in the form of a legal advice helpline run by a team of professionals. There are often limits to how much your insurance provider would be prepared to pay so expenses are often capped at £50,000-£100,000. However, this depends on your policy and you can extend the cover if you wish, but your premiums would be higher.
What are the most common legal issues?
Legal expenses insurance tends to be most commonly used in cases of:
- injuries as a result of accidents
- claims against negligent drivers
- disputes regarding faulty goods or services
- employment-related issues such as unfair dismissal or discrimination
What common exclusions are there?
Legal expenses insurance doesn’t cover the policyholder in cases of family-related issues such as divorce or child custody. Defamation and libel are also excluded from these policies.
Like many other insurance policies, disputes or incidents which occurred before the policy was taken out won’t be covered. Policyholders should also check with their insurer before they pay anything since until the claim is officially approved by them as reasonable, they won’t repay any legal costs paid out prior to this approval. Often insurance providers put a time limit on how soon they must be notified. Therefore, policyholders should let them know as quickly as possible, or their claim will be rejected.
Under what circumstances would an insurer approve a claim?
Apart from the time restraints, insurers want to be sure that they stand a chance of winning the case. If legal experts decide that the likelihood of winning is under 51%, they won’t proceed with the case. Therefore, policyholders would have to meet any legal expenses out of their own pocket or drop the case. If new evidence comes to light which reduces their chances of winning, insurance providers will drop the case. They wouldn’t approve of the case if the potential winnings (in terms of compensation) are less than the legal costs either.
If legal experts decide that the likelihood of winning is under 51%, they won’t proceed with the case.
Often civil cases are settled out of court. If the other side makes an offer which is judged to be ‘reasonable’ and the policyholder turns it down against the advice of their legal counsel, then the insurer will withdraw from the case and the policyholder must pay all subsequent legal fees.
Are there any alternatives to legal expenses insurance?
If you need legal help and you don’t have legal expenses insurance, is there anywhere else you could turn for help?
Your entitlement to legal aid depends on your financial circumstances. Also, there are certain cases such as personal injury when it can’t be used. Since 2013 there have been massive changes to the system and the extent to which it is awarded. In 2010-11, £2.5 billion was given in legal aid, but by 2016-7 this had dropped to £1.6 billion.
Professional bodies, trade unions & ACAS
Many professional bodies and trade unions often offer legal advice to their members as part of the benefits of their subscription. Some would even provide a legal representative if necessary. Legal expenses insurance might be included as part of an employment benefits package too.
Many professional bodies and trade unions often offer legal advice to their members as part of the benefits of their subscription.
The procedure for employee-employer disputes was overhauled by ACAS in 2014, and you can now use their arbitration service. This is much more informal and doesn’t require the presence of a legal expert.
ATE (After-the-Event) insurance
ATE is insurance which can be taken out after a dispute has already arisen. It can be purchased through a solicitor who works according to a Conditional Fee Arrangement (CFA). If the case is lost, the solicitor remains unpaid, but otherwise takes a percentage of the compensation awarded (though this is often capped at 25%).
Conclusion – Reading your insurance policy
It has been estimated that 16 million people in the UK have at least one insurance policy covering them for their legal expenses in case of civil court cases. Unfortunately, a third didn’t realise that they had it, and this can often affect their behaviour when faced with the possibility of legal action. It is vital that you read all the fine print in your insurance policies as it can save you money in the long-term.