Legal Expenses Insurance: Is It Worth Having?

‍‌‌‌‌‌‌​​‌​‌​​‌​‌‌​‌‌‌‌​‌​‌‌‌‌‌‌‌‍SiteKiln gives you plain-English information, not personal insurance, financial or legal advice. If you need advice specific to your situation, talk to a qualified insurance broker or solicitor.

6.7.1 The short version

Legal expenses insurance (LEI) is there to pay your solicitor and court costs if you get into certain types of dispute -- usually contract rows, tax enquiries, property issues, employment disputes and some criminal/health and safety matters. Business policies for small firms often sit as an add-on to your main package and give you a pot of, say, £50k-£100k per claim for covered disputes.

For a small construction business, it can be very good value if it genuinely covers contract disputes and HMRC enquiries, and if you are comfortable with the small print. It is a waste of money if the exclusions quietly strip out most of the real-world construction problems you are likely to face.

6.7.2 Why it matters

A half-decent dispute can burn through thousands just getting advice and a couple of letters out, before you even see a courtroom. If you are chasing £20k on a job or defending yourself on a HSE or tax enquiry, having a pot of insurer money to fund solicitors gives you options you simply would not pay for out of your own pocket.

On the flip side, LEI is not magic. If the wording excludes construction contracts, adjudication or building regs/planning disputes -- which some do -- you can end up paying for something that never triggers when you need it. The value is totally in the detail: right wording, right dispute types, right limits.

6.7.3 What legal expenses insurance usually covers

A typical small-business LEI policy will pay reasonable legal costs (solicitors, barristers, court fees, expert witnesses) for specific dispute types, often including:

• Contract disputes -- arguments with customers or suppliers over goods, services or unpaid invoices.
• Employment disputes -- defending claims from employees (unfair dismissal, discrimination, etc.).
• HMRC/tax investigations -- some policies support you at enquiry stage or basic investigations.
• Property and boundary disputes -- damage to your premises, access issues and similar.
• Criminal and regulatory defence -- certain health and safety or motoring offences, if there is a reasonable prospect of defence.

Common features:

• A legal helpline you can ring for day-to-day advice.
• Cover limits often between £50k-£100k per claim, with an annual cap.
• A requirement that there is at least a "reasonable prospect of success" (often 51%+) before they fund a case.
• If you win and the court orders the other side to pay your costs, the insurer will usually want some or all of its outlay back from those recovered costs.

6.7.4 Typical construction-sector exclusions and gaps

This is where you have to read very carefully. Some commercial LEI wordings aimed at "building and allied trades" still carve out large chunks of what you might assume are covered disputes.

Examples from real wordings:

• Contract dispute exclusions for certain types of contract -- including, in some policies, construction contracts entered into before the policy period, employment contracts, and contracts involving credit or guarantees.
• Exclusions for adjudication and arbitration, which is how a lot of construction disputes actually get resolved under JCT/NEC.
• Property dispute exclusions around planning and building regulations decisions, compulsory purchase and similar.
• Wider "injury/damage/professional duty" exclusions -- some policies will not fund defence for civil proceedings alleging injury, property damage or breach of professional duty, because those should be picked up under your liability or PI policy instead.

That does not make LEI useless, but it means:

• It is not a substitute for good PI, PL or contract works cover.
• You must check that construction contract disputes and adjudication are in, not out, if that is what you are buying it for.

6.7.5 When LEI is usually worth it

For a small construction firm, LEI tends to pay its way when:

• You are big enough to have staff -- employment disputes are expensive, and many LEI policies include tribunal defence and representation.
• You regularly have contract niggles and unpaid invoices where you would like a solicitor's letter and structured debt recovery, but you cannot justify it at full private rates.
• You want backup on HMRC enquiries, especially if you are growing and your record-keeping is not perfect.

Typical annual costs for SME-style legal expenses add-ons sit somewhere in the low hundreds per year depending on trade, turnover, staff and limits, which is often less than the cost of a single hour or two with a decent solicitor.

Where it is less useful:

• One-man bands with no staff, who keep contracts simple and rarely chase large unpaid sums.
• Anyone expecting it to fund big, complex construction litigation or a major adjudication under a heavy JCT -- many wordings will not go near that.

6.7.6 Quick legal expenses health check

It is probably worth a look -- or a clean-up of what you have -- if:

You already have "legal expenses" bolted to a policy but could not explain in simple terms what it actually covers.

Your wording does cover commercial contract disputes and debt recovery for your trade, and does not completely exclude construction contracts or adjudication.

The per-claim limit (often £50k-£100k) lines up with the size of disputes you are likely to have, and you are happy with the "reasonable prospects of success" rule.

You have at least one area of exposure -- staff, tax, or constant niggles over payment -- where you would realistically use the legal helpline and letter-before-action service.

If the policy excludes most construction contracts, adjudication and planning/building regs issues, and you do not have employees, you may be better off putting that premium aside for a direct chat with a specialist solicitor when something real crops up.

6.7.7 What to do next

• If you already have legal expenses insurance, read the wording and check whether it actually covers construction contract disputes and adjudication.
• If it excludes most construction disputes, decide whether the remaining cover (employment, tax, property) justifies the premium.
• If you have staff or regular payment niggles, LEI that covers employment tribunals and debt recovery can be good value.
• Compare at least two quotes and ask specifically about construction contract, adjudication and HMRC enquiry cover.

6.7.8 Who to contact

• Your insurance broker -- to review LEI cover and check exclusions (paid)
• FCA Financial Services Register -- fca.org.uk/firms/financial-services-register -- to check your insurer or broker is authorised (free)
• Financial Ombudsman Service -- 0800 023 4567, financial-ombudsman.org.uk -- if you have a complaint about your insurer (free)
• ABI (Association of British Insurers) -- abi.org.uk -- general insurance guidance (free)
• Citizens Advice -- citizensadvice.org.uk -- for general guidance on disputes and legal rights (free)

6.7.9 Sources and legislation

• Consumer Insurance (Disclosure and Representations) Act 2012 -- your disclosure duties when arranging insurance. legislation.gov.uk/ukpga/2012/6
• Third Parties (Rights against Insurers) Act 2010 -- context for how insurance responds in insolvency. legislation.gov.uk/ukpga/2010/10
• Employers' Liability (Compulsory Insurance) Act 1969 -- context for how LEI sits alongside required covers. legislation.gov.uk/ukpga/1969/57

6.7.10 Related guides on this site

• 6.1 Public liability insurance
• 6.9 Making an insurance claim
• 6.10 Insurance for subcontractors
• 5.7 HMRC investigation
• 1.4 Adjudication -- the nuclear option
• 1.15 Late Payment Act -- your secret weapon

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