Am I covered if somebody takes legal action against my company?

I’ve been advised to take out commercial legal protection in case anybody decides to take action against us. But as a company that is very aware of its legal obligations to employees and clients, we already invest a lot in preventing such action. Providing we continue to operate lawfully, do we need additional cover?

A. Keith Stibbards of Ace Insurance writes:

First, let’s be clear about what you mean by commercial legal protection. This can mean insuring your liability to third parties or insuring the legal costs incurred in defending such actions.

As a company that understands its legal responsibilities, no doubt you will have employer’s liability. However, the workplace environment has changed considerably over the last few years and it’s not just a matter of operating lawfully that will avert the potential for claim. You need to consider insurance in respect of public and products liability – protection in the event of claims by customers or members of the public – and possibly director’s and officer’s liability.

Despite your efforts to prevent accidents through risk assessment, accidents do happen and, in an increasingly litigious society, there is always the possibility of claims occurring.

The importance of having an effective risk management programme covering everything from health and safety to business continuity will be obvious. Your legal obligations to third parties can be onerous and the impact on the business of any failure could be expensive.

If your broker is recommending further cover it’s because he sees a gap in your protection. Ask yourself: “What would be the impact on the business if I do not have this insurance?” and “Can I afford not to have this insurance?”


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