Legal expenses insurance

What it means

Legal expenses insurance covers the costs a company incurs in resolving legal disputes: lawyers’ fees, court fees, expert reports, the other side’s costs if the case is lost, and interpreting. Insurers often provide telephone legal advice as well.

For businesses the cover usually comes in modules, such as disputes under contracts with suppliers and customers, employment disputes, property disputes, administrative proceedings or criminal proceedings against drivers. The company chooses which areas to cover.

It differs from liability insurance in that it pays not for damage caused to others but for the costs of asserting or defending the company’s own rights. The two are therefore often combined.

How it works in practice

When recovering larger debts or in disputes with business partners, we compare with the client whether insurance or paying a lawyer directly is better value. For companies with frequent disputes, such as in construction, insurance can significantly reduce unpredictable costs.

The premium is tax-deductible. An insurance payment made directly to the lawyer is generally not booked by the company as income and expense if it is merely paid on the company’s behalf, but we always check the contractual arrangement against the documents.

Before filing a lawsuit or an application for a European order for payment, the company must obtain the insurer’s confirmation of cover. Without it the insurer may refuse to pay the costs even if the dispute would otherwise be covered.

What to watch out for

The insurance has a waiting period and does not cover disputes whose cause arose before the policy was taken out. A company that buys a policy only when a dispute is looming will have its claim refused. The insurance makes sense as prevention, not as a sudden reaction.

Exclusions tend to be extensive: disputes between shareholders, tax disputes, intellectual property disputes or debt recovery against debtors in bankruptcy are often not covered. Before signing it is important to read the terms, not just the price.