A lot to lose

At the recent Insurance Age High Net Worth Forum, ARAG’s Andy Talbot explained why legal expenses insurance tailored to suit the heightened and varied demands of the high net worth market is essential, to ensure such clients are fully covered.

It’s a nightmare scenario for any broker, having to tell a client that their claim isn’t covered under the terms of the policy they took out. For high net worth (HNW) brokers, the stakes can be even higher.

It’s not just that the expectations of HNW clients - who have obviously paid significantly larger premiums - are often elevated. The value of the claim that is effectively being declined could be eye-wateringly high.

How could such an important risk be left under or uninsured?

Take, for example, the celebrity’s new-build home, bristling with luxury and the latest domestic innovation but rendered uninhabitable by shoddy craftsmanship. Water in the lift-shaft, under the pool and even running down the walls of the home cinema might have been just an inconvenience, but when the centerpiece staircase was judged structurally unsound, it was time to move out.

While the cost of such immediate disruption is unlikely to trouble the credit cards of the rich and famous, the price of putting the defects right was estimated at well into seven figures, a frightening sum, even by HNW standards.

Obviously, a builder’s defective workmanship isn’t going to be covered under a household policy, even a high net worth one, but this is one scenario in which legal expenses insurance (LEI) can fill the gap and offer a potential route to restitution.

The legal costs stretched beyond £50,000 to compel the building contractor to put the defects right, but the case has been won and the client is back in their home.

Another example of LEI filling a gap left by other policies entailed the theft of jewelry worth millions from a commercial vault, where it was awaiting sale. Ultimately, the custodians’ commercial insurance should pay out for the value of the jewels, eventually, but even this will leave the owners considerably out of pocket.

It took a legal expenses insurance claim to pursue the merchants for other costs incurred by their breach of the contract with the jewels’ owner. A refund of their fees, interest on the value of the jewelry from the date it might reasonably have been sold and other losses, amounted to a significant sum that would have been difficult to recover by any other means.

As well as increased limits of indemnity, policies for HNW customers can be augmented with numerous special covers to meet their broader legal exposure (such as holiday homes and employment cover for domestic staff). The best of them will also guarantee representation by more senior solicitors at a firm accustomed to working with wealthy clients.

By definition, high net worth clients have a lot to lose. Appropriately tailored legal protection is an essential element in ensuring misfortune doesn’t take it away.