An employment practices liability (EPL) policy is often seen as a key element in limiting the management liability risks of a business. But the cost of EPL cover has risen sharply and options have narrowed as some providers have withdrawn from this particular market niche.

For many businesses, especially SMEs, legal expenses insurance (LEI) offers a valid and highly affordable alternative, providing protection against the legal costs of various disputes beyond just those with employees, as well as useful services such as helplines and online legal tools.

 

The cost of EPL cover was rising long before the coronavirus pandemic, and not just in the UK. The worldwide impact of the #MeToo movement and a broader focus on employee rights and workplace discrimination had seen EPL rates starting to harden, in recent years.

Closer to home, these global trends were compounded in the UK by a 2017 Supreme Court judgment which found the tribunal fees, levied by the government since 2013, to be illegal. Since then, the number of employment tribunal claims has increased rapidly.

The impact of the coronavirus on this hardening market has already been felt and will grow in 2021, with the wave of redundancies that has, thus far, been partially held back by government furlough measures.

Unlike ARAG, some EPL providers in the UK are neither legal protection specialists nor focussed solely on the UK market. While ARAG is part of a huge, global group that insures legal costs in more countries than any other, the UK business specialises in legal protection and assistance.

ARAG is both more experienced and entirely committed to the legal protection market. While, many providers have significantly increased rates, taken other underwriting measures and, in some cases, withdrawn from the EPL market entirely, ARAG is actively seeking new business.

It may sometimes be presented as a peripheral benefit, but the most used feature of a legal protection product and typically a policyholder’s first contact in the event of a problem is the legal advice helpline. This provides confidential legal advice to the business on any area of law, not just those insured events covered by the policy.

Calls to ARAG’s legal advisors are confidential, of course, and might range from a simple query about the current minimum wage for employees of a particular age to complex questions about a company’s specific obligations under a given piece of legislation.

There isn’t a limit on the number of times a business can call, but an issue may be passed to a claims team if it looks like it will trigger a claim under the policy. Unlike some LEI providers, ARAG does not impose a condition that legal advice must have been sought and followed before making an employment claim, though it obviously makes sense for businesses to do so.

Legal advice is just one benefit that policyholders can make use of, even if they don’t need to claim. ARAG also provides a tax advice helpline, crisis communications advice from PR specialists if the company is facing adverse publicity that could cause reputational damage and a confidential counselling helpline that is available to all employees and their families.

ARAG policyholders also have access to a legal services website that offers a huge resource of legal information, as well as document building tools that enable businesses to create lawfully binding and up-to-date legal documents, such as contracts and policies. Most of the documents are free to policyholders but, many can also be reviewed by a lawyer, for a small fee.

Of the specific insured events covered by a commercial LEI policy, employment disputes are inevitably the most common.

The indemnity offered by an LEI policy is for the financial costs of legal action, up to ARAG’s £250,000 limit. This will pay for a solicitor and barrister if necessary, for court fees, expert witness costs and other ‘disbursements’, as additional legal costs are often described.

In the case of employment disputes, however, the policy will also pay any compensation award that the company might be ordered to give the employee, by an employment tribunal or court.

While employment cover is a cornerstone of most commercial LEI policies, not all offer cover for contract disputes and debt recovery, which are also very common and growing in frequency as the recession takes hold. Whether the contract is with a customer or supplier, for goods or a service, an LEI policy can provide the legal muscle to enforce it.

The other insured events for which legal costs will be paid by the policy can vary, but ARAG’s business legal cover includes property disputes over the business premises, tax disputes with HMRC, legal defence against criminal prosecutions including motoring offences, and appeals against statutory notices issued by a compliance or regulatory body including the payment of ‘fees for intervention’ levied by the Health and Safety Executive.

One feature of LEI policies that it is important to understand is the ‘prospects of success’ clause which stipulates that a legal claim will only be pursued while it is more likely than not to be successful in court (sometimes expressed as having ‘51% or better prospects’).

LEI policies are designed to protect the policyholder’s legal rights, but courts can take a dim view of claims that might be petty or legally ill-founded, so insurance providers reserve the right to decline claims that a solicitor considers unlikely to succeed. They will, however, recommend other avenues that might be more beneficial, such as mediation.

While LEI policies are designed to protect the legal interests of the business, ARAG has added an ‘Executive Suite’ of covers to protect the personal interests of certain key personnel in the organisation, which it is also important to distinguish from the cover offered by a D&O policy.

This covers individuals in the event of an investigation into their personal tax affairs, a motor prosecution, mediation if there is a dispute between partners in the business and crisis communications advice if negative publicity is likely to adversely impact the business. There is also a personal ID theft assistance and resolution service available, in the event that they fall victim to identity theft.

As well as making it more competitive, the company’s specialist experience also enables ARAG to be more flexible.

Whether catering to the specific needs of an SME scheme looking for broad legal protection or larger enterprises seeking to manage their employment practices risks, ARAG can build products that strategically address a given market niche.

The company has earned its reputation as a ‘specialist in specialists’ by building bespoke commercial propositions to protect the legal interests of businesses in various markets. Whether through increased limits of indemnity, access to particular solicitor firms or indemnity against specific legal or regulatory risks faced in a certain sector, such as medical practitioners or care providers, ARAG can tailor an LEI or EPL product to meet their specific needs.

Disclaimer - all information in this article was correct at time of publishing.

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