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Legal Expense Insurance: What You Need to Know

If asked to name the most litigious place in the world most Canadians would look directly south for their answer. While it’s true that the US leads the way by many measures (number of lawyers suits filed and the numerous bizarre high profile cases that receive massive media coverage) the fact is that in all wealthy democracies companies organizations and individuals use courts to settle issues that they cannot otherwise resolve. So it may seem surprising that legal expense insurance – sold as protection against damaging legal costs – is a type of business insurance that is quite common in Western Europe and the US but not in Canada.

What is legal expense insurance?

If you purchase legal expense insurance your insurer will cover your legal costs in certain legal matters and within certain limits. It can be purchased separately or as an extension of other types of insurance and is available to individuals, small and medium-sized businesses (without an in-house lawyer), and organizations, such as labour unions, where it can be one of the benefits of membership.

There are two main types of legal expense insurance:

  • Before-the-Event (BTE) insurance
  • After-the-Event (ATE) insurance

BTE insurance typically provides protection against the possible future costs of suits brought against the insured party and suits brought by the insured party.

For businesses and organizations the types of legal action covered by BTE insurance are:

  • Employment disputes
  • Contract disputes
  • Tax Disputes (audits and appeals)
  • Violations of certain statutes
  • Suspension or cancellation of business-related licenses
  • Property issues
  • Defence in certain criminal prosecution

For individuals a BTE policy will cover employment contract and tax disputes as well as:

  • Bodily injury
  • Property protection
  • Highway Traffic Act infractions and action related to your driver’s license
  • Landlord-tenant disputes
  • Defending yourself against criminal prosecution at work.

ATE insurance will cover some of you or your business’s costs in the event that you lose an action that is already in progress and serves as a form of protection against unexpected judgements.

An additional benefit of both forms of legal expense insurance is access to legal advice; insurance providers will arrange for telephone calls between policy holders and a network of lawyers. This may be the most attractive aspect of a legal expense policy if you are small or medium-sized business owner who does not qualify for any kind of free advice or representation for legal action related to their business. Not only will the costs of certain actions be covered by your policy quality legal advice may increase you chance of success in court.

Accessing legal expense insurance in Canada

DAS, part of the German insurance company Munich Re, has made legal expense insurance available to Canadian clients and for a number of reasons they remain a good option for businesses and individuals looking to protect themselves against legal costs.

  • Firstly, DAS legal expense policies are some of the most convenient to access being available through brokers throughout Canada.
  • Secondly, through arrangements with other insurance providers DAS’s legal expense coverage is available as an easy addition to many types of personal and commercial insurance; some other companies provide legal expense coverage only to commercial clients.
  • Thirdly, the legal advice available to holders of DAS legal expense policies is extensive due to their nationwide presence and role in developing the market.

What are the limits of DAS legal expense insurance?

It is important to note that this coverage extends to legal expenses only meaning it does not cover any legal damages you may be required to pay out. There are also certain cases that will not be covered. Your broker will have the full details on any exclusions for this policy.

How much does covering business legal expenses in Canada cost?

Your premium will depend on your coverage and is also based on your revenue number of employees and type of business.

If you’re a business owner and are worried over the cost of potential legal expenses talk to your broker about this coverage. Not only do you have the peace of mind of coverage you will also have access to invaluable legal advice.

Things to watch out for

Due to the high cost of legal action reading your policy carefully and having a clear idea of which legal expenses are and aren’t covered is perhaps even more important for legal expense insurance than for other kinds. Your broker can explain these things to you and help you make the right decision.