Business Legal Expense Insurance (LEI): What It is, How It Works
Legal expense insurance (LEI) for businesses is a type of legal protection insurance (LPI). LEI coverage shields a business from the costs of defending itself in the event of a lawsuit. It is intended to protect against costs incurred as a result of third-party lawsuits, but it may also cover expenditures incurred as a result of lawsuits initiated by the insured against others. These charges could include lawyer fees, witness expenses, court fees, or even the cost of hiring expert witnesses.
LEI is primarily used in large organizations, but it is critical for any size business that faces the possibility of being sued or has to offset the cost of suing a customer. Commercial legal cost insurance (CLEI) is a sort of legal expense insurance that is oriented toward small to medium-sized businesses. LEI may occasionally cover legal fees associated with a company's intellectual property and brand protection.
Who Needs Business Legal Expense Insurance?
Every firm is exposed to lawsuits, but some are more vulnerable than others. Every day, headlines concerning lawsuits filed against manufacturers and doctors appear in news feeds, and any corporation or independent contractor may find themselves facing the headache of a lawsuit.
Money managers and financial advisors may obtain legal expenditure insurance to protect themselves from clients who believe the company has defrauded them. Larger organizations that face a real risk of lawsuits, such as wrongful termination claims and financial audits, are more likely to get business legal expenditure insurance.
What Expenses Does LEI Cover?
There are two primary structures for covering business legal expenses. Before the event (BTE) and after the event (ATE) structures are used.
- Future expenses are covered by BTE. This option, like a regular insurance policy, provides coverage with the insured paying premiums based on their risk profile.
- After the action has begun, ATE policies handle it. Because processes are ongoing and expenses are unavoidable, this coverage is more expensive.
Before obtaining legal expenditure insurance, a company should review its present insurance coverage to see whether risks are fully covered and where there are gaps in coverage. Because an insurer may view the application as less dangerous, BTE insurance is more widely available. The premium for this sort of protection is determined by the line of business and the hazards that are most likely to be encountered by that business. Certain insurance may also cover routine legal advice and legal costs associated with trademark and copyright protection.