Legal expense insurance (LEI) covers various types of legal expenses incurred by the policyholder and is often written on a group basis, according to the Insurance Bureau of Canada (IBC). LEI solutions give clients access to legal advice and guidance as well as coverage for the costs of pursuing legal action once a claim has been accepted, both when a case is brought by and against the policyholder.
The two basic types of legal expense insurance include After-the-Event (ATE) and Before-the-Event (BTE) insurance, the latter of which is more common in Canada, though ATE offerings are also growing in popularity in the country, as revealed by an Insurance Institute of Canada (IIC) report. BTE insurance buyers tend to be small or medium-sized companies that don’t have counsel in-house, though it’s also available to individuals, and the policies respond to unforeseen legal events that can impact the business. BTE is typically purchased through a broker.
Accordingly, ATE insurance helps to protect an insured after a claim has already come up, paying out for disbursements that the insured’s lawyer makes in pursuing the action and adverse costs the court could demand that the insured pay. It is most effective when offered by a law firm to a plaintiff, who is then the owner of the ATE policy, upon retainer.
“We would recommend the ATE insurance be offered at the point that the plaintiff hires their lawyer,” explained Dominique Zipper, ATE manager for DAS Canada. “The reason for this is that litigation that has been ongoing for several years can, depending on the stage of litigation, be rendered uninsurable simply because of the increased risk at a later stage of litigation.”
Without ATE insurance, a plaintiff could potentially go to trial and lose, and end up owing one or more defendants their costs of having to defend the action.
What risks does legal expense insurance cover?
Individuals and businesses requiring access to a lawyer can get that through a legal expense insurance policy. Even if they don’t have the budget to pursue a legal issue, a policyholder can get legal assistance that allows them to defend or pursue their rights in the legal system, offering access to justice for all, Nancy Babeu, ARAG’s principal broker in Quebec, told Insurance Business.
For a business owner, some of the issues covered by a BTE legal expense policy can include disputes with employees, a notice of enquiry into taxes or VAT returns, or a health and safety inspection that results in a threat to prosecute the business, according to ARAG, though there is a range of common problems that a business owner – whether they manage a landscaping company, dance studio, restaurant, or other type of business – could encounter through which an LEI policy would support them.
Depending on their practice area, years of experience, location, and the size of law firm, lawyers’ fee can range from a couple of hundred dollars per hour all the way up to $400 and counting.
“Legal expense insurance can help to protect businesses and their employees against potentially huge future legal costs by asserting the insured’s legal rights,” commented Katherine Ferrante, vice president of sales and business development at ARAG. “Legal expense insurance can also help protect individuals or businesses in legal proceedings through the panel of lawyers that is kept on retainer, who specialize in a vast range of areas of law.”
Where can I get legal expense insurance?
Brokers can partner with legal expense insurance providers in Canada, to offer these policies to their clients, including ARAG and DAS Canada. ARAG Canada provides a nationwide service to brokers, insurers and MGAs, and offers legal protection solutions for families, landlords and businesses, which includes access to a comprehensive legal document centre, a 24/7 telephone helpline, and other key services. ARAG’s Business Legal Solutions are available to add to the coverage offered to commercial groups or as an add-on to build right into the products offered to commercial clients. The limit of indemnity for this solution is $200,000, up to $1,000,000 aggregate. For both Landlord Legal Solutions and Family Legal Solutions, the limit of indemnity $100,000, up to $1,000,000 aggregate. All figures are correct as of November, 2018.
DAS Canada offers legal expense insurance policies for groups and associations as well as businesses to cover legal costs and gaps in traditional commercial insurance coverage. DAS also has a product designed specifically for business owners who rely on one or more company owned vehicles and drivers to carry out business. DASbusiness policy limits are $200,000 per claim and $1,000,000 in total per policy year, while DAStransport has policy limits of $100,000 per claim and $500,000 in total per policy year. Both include unlimited telephone legal advice for any legal question, whether the issue is covered by the policy or not. All figures are correct as of November, 2018.
DAS for affinity groups and associations is available in two packages: DAS Personal is an insurance solution for families while DAS commercial is tailored to protect businesses.
According to Ferrante, brokers would do well to offer LEI solutions to their clientele: “Legal expense insurance offers brokers a unique opportunity to differentiate themselves in a very competitive market by offering this new level of risk management.”
Legal expense insurance in Canada
Forerunners to modern day LEI have been around since Napoleon’s time, but the modern legal expense insurance market was born in Europe during WWI and came to Canada much later, in the early 1990s. ARAG’s Babeu characterized the state of legal expense insurance in Canada as an emerging field with lots of room to grow. Growing awareness among brokers and consumers on the benefits of the coverage is crucial to developing the market further and providing access to justice for all.