Can legal expense insurance be used by an insured to sue their broker?

Can legal expense insurance be used by an insured to sue their broker? | Insurance Business

Can legal expense insurance be used by an insured to sue their broker?

Legal expense insurance (LEI) can alleviate the stress of tax season for businesses or offer legal expertise to SMEs grappling with provincial employment reforms, but some brokers are still hesitant to offer the product to their clients because of a misconception about how LEI could be wielded by the insured.

“There are brokers out there who are reluctant to sell LEI because they think the insured could use the policy to sue them,” said Katherine Ferrante, vice president of sales and business development at ARAG Canada. “Brokers are reluctant to have their teams educated in LEI and then encourage them to actively promote due to a fear of the insured then being able to use the policy to sue the brokerage.”

This scenario could scare some brokers off from selling LEI, even though it’s a misunderstanding about the product that Ferrante is eager to address.

“In the insurance world, if a client is unhappy with the insurance or lack of insurance provided by their broker, it’s the broker’s E&O that would respond,” she said. “If the insurance regulatory body gets wind of a broker acting in contravention of their broker licence, then it’s the regulator that takes action.”

ARAG will not allow the insured to use their legal expense insurance policies to take action against their broker. Within its policy wording exclusions and conditions section is a clause which states “a dispute with us (ARAG), the insurer, or the party who arranged the cover” which in this case ‘the party’ would be the broker, Ferrante told Insurance Business.

Read more: Legal expense insurance allows businesses to be “proactive rather than reactive”

Moreover, she added, “If the brokerage purchased an ARAG Business Legal Solutions policy, they would be protected for disciplinary action under the insured element ‘Compliance & Regulation.’ If a broker receives notice of a formal investigation, or a regulatory or disciplinary proceeding against them by any professional, disciplinary, or regulatory body, this would trigger the policy to respond.”

With this myth debunked brokers can, without hesitation, offer legal expense insurance as a new level of risk management to all of their clients knowing that ARAG will be protecting them.

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