September 30, 2022

DEFINITION of Business Legal Expense Insurance

DEFINITION of Business Legal Expense Insurance

An insurance policy that provides coverage for expenses that a business may incur from lawsuits. Business legal expense insurance is likely to be purchased by larger companies that face a real threat of lawsuits, such as wrongful termination claims and financial audits. It is designed to protect costs stemming from lawsuits brought by third parties, but may also cover costs associated with lawsuits that the insured pursues against third parties.

BREAKING DOWN ‘Business Legal Expense Insurance’

Money managers and financial advisors may purchase business legal expense insurance in order to protect themselves from clients who believe that the business has lost them money. For example, a client may claim that the financial advisor did not advise him or her of worsening economic conditions, and that the losses that the client incurred could have been avoided. If the advisory company‚Äôs liability insurance does not cover legal expenses, the company may consider purchasing legal expense insurance.
Business legal expense insurance can cover legal expenses that could happen from future events (before the event, or BTE, insurance) or after it realizes that a lawsuit is pending (after the event, or ATE, insurance). BTE insurance provides coverage like a standard insurance policy does, with the insured paying premiums based on its risk profile. ATE insurance is more expensive because the insurer already knows that a lawsuit is pending, and that legal expenses are inevitable.
Before purchasing legal expense insurance the business should examine its current insurance coverage to determine which risks are covered fully, and identify areas where there is a gap in coverage. BTE insurance is the most widely available because the insurer may consider the applicant less risky. The amount of the premium depends on the line of business and the risks that the business is most likely to face.
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