Commercial Legal Protection is designed to help SME businesses deal with unexpected legal issues not already covered by their other insurance policies. Intended to complement traditional SME policies, rather than substitute core insurance cover, the policy provides expert legal assistance when an insured really needs it and protects them from potentially crippling costs which will have to be incurred, regardless of any fault on the client’s part.
In general terms, legal expenses insurance provides advice and cover for the legal costs of pursuing or defending certain classes of legal action. It is not a substitute for General Liability, Professional Indemnity, Directors and Officers Liability insurance or Management Liability insurance, but it aims to cover legal expenses not covered by those insurances.
Legal expenses insurance complements other classes of insurance as it lowers the financial burden associated with legal disputes and also provides access to legal advice and assistance which could curb the need for full-scale litigation.
Under the Solution Underwriting wording a Dispute means any civil legal proceedings or action in a Court or Tribunal either commenced by the Insured or commenced against the Insured by a third party which relates to the Insured’s core business activities and which falls within one of the policy’s Head of Cover below.
Head of Cover 1: Contractual Disputes regarding Supply of Good and/or Services
Perhaps the most valuable Head of Cover for most SMEs, this section covers the Insured’s own legal costs and any legal costs awarded against them both when defending a claim against them by a customer or supplier; and when pursuing a customer or supplier over the breach of a term in a written commercial contract.
Examples include where a Contract Cleaner has had to pursue a cleaning products supplier over sub-standard goods which they had bought to sell on; and where the Insured has a lawyer defend them when they have refused to pay a hire company for a faulty piece of plant or equipment leased to them.
Head of Cover 2: Tax Audit
Tax Audit is a well-established standalone product in Australia and has been included with legal expenses policies for a number of years. This cover will pay for an Insured’s accountant to respond to an audit by the Australian Taxation Office. If the audit escalates into a dispute, the policy can extend to also cover a specialist lawyer to represent the Insured in any proceedings which may arise.
Not only does this Head of Cover include expenses associated with the Tax Audit but it also covers a claim from the ATO where additional GST is due or where additional income tax or fringe benefits tax is due.
Head of Cover 3: Statutory Licence Protection
This section will indemnify the Insured for costs incurred in seeking to protect the Insured’s rights under a statutory licence which is under threat of suspension, revocation or amendment and could have a material impact on the client’s ability to conduct their business.
The policy will provide expert legal assistance to challenge any attempt to suspend, revoke or alter the terms of the licence to the Insured’s detriment.
Head of Cover 4: Landlord Disputes
Where a SME rents its business premises from a commercial landlord there is scope for dispute over the terms of the lease and alleged breaches arising from it. The policy will provide the Insured with a lawyer to pursue a claim against a landlord or defend themselves in the event that they are accused of a breach.
Heads of Cover 5: Restrictive Covenant Pursuit (protecting a client’s intellectual property)
An SME’s customer base and sensitive commercial information is its lifeblood. When an employee leaves the business, it is imperative that they are not able to take this information to a new employer and use it to prejudice the SME’s interests. This cover ensures that where a restrictive covenant preventing them from doing so is written into their employment contract, legal assistance is on hand from a specialist in the field to enforce the relevant terms as far as the law will permit, in order to mitigate the damage caused.
Head of Cover 6: Third Party Damage to Goods or Premises
This section is triggered when a third party causes damage to an Insured’s premises or property.
Head of Cover 7: Debt Recovery
Cashflow is vital to all SME businesses. The debt recovery service provided under the policy will provide assistance for the Insured to exert pressure in recovering the sums due, and ultimately taking matters to court if this fails to bring the desired outcome.
Legal Advice Service
All clients have access to a free Legal Advice Service managed by one of Australia’s prominent legal firms. This dedicated service has been created for Solution Underwriting Agency clients and allows the Insured to receive targeted advice from a lawyer relating to any problem directly associated with the client’s core business activities.
The Legal Advice Service provides free, specialist advice with fast turn around and clients can obtain legal advice as many times as required throughout the policy period – no limitations.
A retailer policyholder entered a contract with a marketing firm to run some events to promote a new product. Despite all invoices being paid in a timely manner, the marketing firm refused to complete the job originally agreed, stating that they had already exceeded the brief as set out in the contract. The policyholder lodged a claim and a lawyer was appointed who wrote to the firm, requiring them to comply with the terms of the agreement and complete the work to the retailer’s satisfaction. They failed to comply, so the policy paid the legal fees of the lawyer to then sue the marketing firm which resulted in contractual damages being awarded to the policyholder.
Restrictive Covenant Dispute
An employee of the policyholder, a company providing cleaning services, left the business and went to a rival. It was a strict stipulation in the employment contract that they were not to contact any of the policyholder’s roster of clients for a 3 month period after ceasing their employment. The company was advised by a loyal client that they had received communication from the former employee offering the services of the new practice.
A claim was lodged under the policy and a lawyer appointed who wrote a cease and desist letter ensuring this behaviour stopped, and reserving the right to seek damages for any loss of business which might flow from the breach of the restrictive covenant. No further poaching of clients occurred.
A manufacturing policyholder received notification from the ATO that their GST return was to be audited.
A claim was lodged under the policy which paid for the company’s own accountant to respond to the audit, and after some back and forth with the ATO they were satisfied that no further GST was due and the matter was closed at no cost to the policyholder.
The policyholder provided their cleaning service to a customer as agreed in a written contract and sent them an invoice for the cost of $25,000. Their customer did not pay on the due date.
The policyholder tried to contact the customer to see what was happening. After two weeks of no response from the customer, the policyholder contacted the Debt Collection Service.
The Debt Collection Service contacted the customer who then claimed the services provided by the policyholder were not as requested and therefore were not paying. The policyholder sued the customer using the Contractual Disputes Head of Cover. The matter was defended by the customer but the court found in favour of the policyholder, who was covered for their $10,000 of legal costs.
Statutory Licence Protection
The policyholder held a statutory licence to import a specific type of pesticide. They were challenged by the authority who claimed that their quota had been exceeded, and their licence was suspended pending investigation. Without the licence the policyholder soon ran out of stock and the business was under threat. The policy responded to pay for a lawyer to quickly intervene in the investigation and have the suspension lifted, allowing the policyholder to resume trading.
The policyholder leased an office and distribution centre which after 6 months occupation suffered a serious and ongoing leak rendering part of the building was unusable. The policyholder asked their landlord to make the necessary repairs as per the terms of the lease agreement. The landlord refused, claiming it was the policyholder’s obligation to fix the problem. The policyholder made a claim under the policy and a lawyer was appointed to negotiate a resolution with the landlord. When this failed, the lawyer progressed the matter to court and the judge found the repair was entirely the responsibility of the landlord who had to fix the building and pay compensation for the loss of use.
The policyholder’s legal costs of the process were covered.
Third Party Damage to Good or Premises
A third party delivered a stack of building materials to the policyholder’s business premises, leaving them unsecured in the external loading area. It was a stormy day, and a gust of wind toppled the stack over, causing it to fall on some delicate machinery which had also just been delivered.
When the third party refused to accept responsibility, the policyholder made a claim and a lawyer was engaged to threaten court proceedings. A payment covering the full amount of damage and associated costs was made to the policyholder.
Legal Advice Service
The policyholder was asked by their client whether they would agree to a liquidated damages clause in a contact. The policyholder didn’t understand this clause or what the implications could be, so they contacted the legal advice service and had it explained to them by a lawyer, allowing them to enter into the contract with confidence.
How do I apply for the CRM Brokers Solution – Commercial Legal Protection policy?
Please click here to complete this short questionnaire and a CRM Broker will be in touch with further information.
If you have any further questions regarding Commercial Legal Protection Insurance and how it can assist your business, contact us on 1300 880 494.