The cost and complexity of the Canadian legal system is often too much for small business owners to bear. According to the Canadian Lawyer Magazine 2018 Legal Fees Survey, the average hourly rate for an experienced lawyer in Canada is $414. If a small business finds itself caught up in a legal dispute, oftentimes it will be unable to absorb the financial and operational impacts without help.
This is where legal expense insurance comes into play.
For an annual premium similar to the cost of having one-hour of face time with a Canadian lawyer, small businesses in Canada can purchase insurance that covers legal expenses, including disbursements, court costs, witness fees, and adverse costs if they’re ordered to pay their opponent’s legal fees.
The legal expense insurance market really started to develop in Canada in 2010. Prior to that, primary insurers carried some legal expense elements, but mainly as extensions to their core commercial liability coverages - and oftentimes there were protection gaps for small business owners.
DAS Legal Protection (DAS) was the first dedicated legal expense insurer to arrive in the Canadian market in 2010. Since then, the market’s annual written premiums have grown from about $5 million in 2010 to approximately $67 million in 2017, and a number of new carriers and program administrators have started offering the coverage.
“Legal expense insurance is still quite new in the Canadian market. It’s currently going through an educational phase with insurance distributors and end-consumers,” said Grace Klemke, assistant vice president of sales for the broker channel at DAS. “As more Canadians learn about the product, they’re starting to realize the value and the need for it within their commercial portfolios. This coverage fills protection gaps and responds to incidents that wouldn’t necessarily trigger underlying commercial coverages.
“Under standard commercial liability coverages, an insured would typically only get coverage for legal defence. DAS’s legal expense insurance helps small business owners not only defend their rights but also pursue their rights. If coverages overlap, we will work with their other carriers to ensure our clients get the most out of their underlying commercial liability coverage as well as their legal expense coverage.”
Convincing a small business owner to shell out a few hundred dollars more for another insurance policy may not seem easy at first. However, that’s where education and communication become key, according to Klemke. She told Insurance Business it’s always a good tool to use customer stories and experiences to help small business owners relate to the value of the coverage.
Klemke gave the example of a small retail business owner named Graham, who received a claim for $10,000 from a former employee for wrongful dismissal, outstanding vacation pay, and breach of human rights legislation. Graham filed a claim with DAS and was allocated an employment lawyer, who submitted a defence to the allegations. Graham will never receive a bill from that lawyer. Under a DAS business policy, the limit of indemnity is $200,000 per claim and $1 million in aggregate per policy period. In this case, Graham’s legal fees will be covered by DAS until his case is resolved.
“If you have a legal issue as a small business in Canada, you’re going to have to pay through the nose for it, and you’re also going to have to take a lot of time out of your business to manage it,” commented Alex Manning, vice president of sales and marketing at DAS. “The price of our legal expense insurance product compares very favourably with the hourly rate for a Canadian lawyer. As part of the policy, our insureds also get access to a 24/7 legal helpline, which is free for them to call and use as many times as they want. Oftentimes, insureds only need to call that helpline once or twice a year and they’ve got significant value from having the policy. As far as the balance in value goes, we think legal expense insurance has a very strong value proposition.”
When you look at it that way, legal expense insurance “is not a hard sell,” according to Klemke. In just eight years, the market has grown from $5 million to $67 million, and DAS expects that trend to continue as Canadian small business owners start to realize the value of the product. Like directors and officers (D&O) liability and cyber liability coverage before it, legal expense insurance is transitioning from a “Why do I need this coverage?” to a “Whoa, I need this coverage!”