Small to medium sized enterprises are unlikely to have the in-house resources to deal with these and are consequentially most at risk. Commercial legal expenses insurance policies which protect against the cost of potential commercial legal disputes, provide the legal advice and representation businesses need to minimise their exposure to these risks.

Employment law and the fear of a claim from an employee, ex-employee or even potential employee is the driving force behind many companies' need for commercial legal expenses insurance. Legislation like the new Employment Equality Act 2004 and other recent legislation introducing new rights for part-time workers, parental and maternity leave. The Working Time Regulations and The Minimum Wage Act have also increased employee rights. All are causing employers to check and in many cases, amend their policies and procedures to remain within the law. Keeping up to date often requires the help of a lawyer. This is exactly where the benefits of legal protection policies kick in. Standard covers also generally include Tax Protection cover, Legal Defence, Property Disputes and Property Protection cover, with extensions like Contract Dispute and Debt Recovery available.

In its early days, commercial legal insurance concentrated on underwriting a risk and stepping in to finance claims when they occurred, now as the market develops, insurers are increasingly using risk management tools to reduce the likelihood of their policyholders becoming involved in a dispute. These may take the form of on-line business advice services, providing detailed guidelines on matters of employment, tax and debt recovery.

Providing legal advice through an e-mail or telephone helpline service enables the policyholder to obtain up to date information on the law and how it affects their individual circumstances. The lawyers providing this explain what action a policyholder can or should take under the law to pursue their case or to comply with requirements under new legislation.

Legal advice is often the first point of contact a policyholder has with their insurer before making a claim. Should a mistake be made and a claim brought at an Employment Tribunal, uninsured firms will probably face a legal bill of several thousand pounds. Without legal expenses insurance, winning their case will be of limited relief as, regardless of the outcome, costs are not recoverable under the tribunal system.

Case insights

Employment dispute - An employee resigned her position and then made a claim of sexual discrimination against her former employer. The employer's legal expenses insurers appointed a solicitor to represent them at the Employment Tribunal. Despite their successful defence, they incurred legal costs of €4,500 which could not be recovered. The costs were paid by the legal expenses insurer.

Legal defence - When a policyholder failed to report an accident to the Health & Safety inspector, they faced prosecution. Solicitors appointed by DAS to represent them advised admitting their guilt, but pleaded mitigation on their behalf. The policyholder was let off with a caution and their insurer paid the solicitor's fees.

Tax investigations - An incorrect return discovered by the Revenue Commissioner in a policyholder's accounts triggered a Full Audit. Accountants appointed by the legal expenses insurer made technical changes to the accounts and showed where some areas of additional taxes needed paying. No further interest or penalties were charged. The accountant's fees of over €4,000 were paid by their insurance.

Enhanced employment related risk management products

Larger businesses often need more than the standard commercial legal expenses protection. Some providers have responded by bringing out products combining legal expenses cover with risk management tools. These involve a specialist employment consultant auditing their business to ensure that they are following best practice, combined with enhanced commercial legal expenses cover providing greater protection against a wider range of employment related disputes. This risk management principle builds on the efforts by insurers to minimise claims against their policyholders by the provision of legal helplines and on-line support.

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