Legal Expenses Insurance The Ultimate Guide

Running your own business means dealing with things that go beyond the tools and the job. Clients who won't pay. Employees who raise grievances. Health and safety investigations. These are the situations that can drag you into legal proceedings, and legal costs add up fast, even when you're in the right.

Legal Expenses Insurance exists to take that financial pressure off your shoulders. In this guide, we cover everything you need to know: what commercial legal expenses insurance covers, when you can claim, what the conditions are and how to get the most from your policy.

Ready to add Legal Expenses Insurance to your cover? Get a quote from Rhino today.

What is Legal Expenses Insurance?

Legal Expenses Insurance covers the cost of legal action, whether you’re pursuing claims or defending them, when a dispute arises in connection with your business. Instead of paying solicitors' fees out of your own pocket, your policy covers those costs up to the limit of indemnity stated on your schedule.

For a sole trader or small trade business, even a straightforward legal matter can run into thousands of pounds in fees before it's resolved. Legal Expenses Insurance means you can pursue or defend a case on its merits, rather than walking away from a legitimate claim because the cost of fighting it is too high.

Here at Rhino, our Legal Expenses Insurance is administered by ARAG plc on behalf of ARAG Legal Expenses Insurance Company Limited. It's a commercial policy designed specifically for businesses.

It's important to know that this is a claims-made policy. That means the claim must both arise and be notified to the insurer within the period of insurance, so reporting things promptly matters.

What does Legal Expenses Insurance cover?

The policy is divided into ten sections, each covering a different type of legal situation. Here's what each one does.

Section 1: Employment disputes

If an employee, former employee or prospective employee brings legal proceedings against you — whether that's an unfair dismissal claim, a discrimination complaint or a dispute over their contract — this section covers your legal expenses in defending that action. It also covers awards of compensation made against you by an employment tribunal, up to the limit of indemnity.

This section comes with an important condition. Before you take any of the following actions, you must call the Rhino Protect Legal Advice Line on 01480 852 080 and obtain their authorisation:

• Carrying out a disciplinary procedure, action or suspension

• Dismissing an employee

• Starting a redundancy programme or making an employee redundant

• Responding when an employee walks out

• Receiving a formal or informal grievance from an employee or ex-employee

• Dealing with an appeal against a disciplinary or dismissal decision

• Making any adverse change to an employee's terms and conditions (including hours, pay or demotion)

• Receiving a formal or informal complaint of sexual, racial, religious or other protected characteristic discrimination

Failing to call the advice line before acting can invalidate your claim under this section. If you're facing an employment situation, pick up the phone first — that's what the free telephone advice line is there for.

Section 2: Health and safety prosecutions

If you face a criminal prosecution arising from a health and safety matter, this section covers your legal defence costs. It covers prosecutions under the Health and Safety at Work Act 1974, food safety legislation, COSHH regulations, the Consumer Protection Act and similar legislation. It also covers appeals against Improvement Notices or Prohibition Notices served under the Health and Safety at Work Act.

Section 3: Criminal prosecution defence

If you're prosecuted in a court of criminal jurisdiction in connection with your business activities, this section covers your legal defence. It also covers appeals against Improvement or Prohibition Notices under the Health and Safety at Work Act or the Food Safety Act 1990.

Section 4: Jury service allowance

If you or a director, partner or employee is required to attend court for jury service, this section covers the income, salary or wages that can't be recovered from the court — up to £100 per day and a maximum of £1,000 for any one claim.

Section 5: Property disputes

If a dispute arises over the physical possession of property you own or occupy, the terms of a tenancy agreement, dilapidations or damage to or from your property, this section covers your legal expenses in pursuing or defending that action. Cover applies provided all statutory and contractual notices have been correctly served and you would suffer financial loss if you failed to act.

Section 6: Data protection

If civil proceedings are brought against you for compensation under Article 82 of the UK GDPR, this section covers your legal defence costs - provided you're registered with the Information Commissioner's Office (ICO).

Section 7: Personal injury

If you or a director, partner or employee suffers death or bodily injury, this section covers the legal expenses of pursuing proceedings to recover damages from the responsible party.

Section 8: Debt recovery

If a customer owes you money and won't pay, this section covers the legal expenses of pursuing that uncontested debt — provided the amount exceeds £500 and you've already exhausted your normal credit control procedures. You must notify the insurer within three months of the debt becoming due.

Up to five debt recovery claims can be made during any one period of insurance.

Section 9: Restrictive covenants

If a former employee breaches restrictions set out in their written contract of employment — for example, approaching your clients or working for a competitor in breach of a non-compete clause — this section covers the legal expenses of pursuing action against them.

Section 10: Wrongful arrest defence

If civil proceedings are brought against you alleging wrongful arrest or malicious prosecution, this section covers your legal defence costs.

What doesn't Legal Expenses Insurance cover?

There are some important general exclusions that apply across all sections of the policy:

• Disputes arising in the first 90 days of a brand new policy (this waiting period doesn't apply if you held equivalent cover with another insurer immediately beforehand)

• Any insured event reported more than 90 days after it occurred

• Claims that aren't notified during the period of insurance

• Disputes outside the territorial limits (the UK, Channel Islands and Isle of Man)

• Any situation you knew about, or ought reasonably to have known about, before the policy started

• Fines, damages or penalties ordered by a court

• Legal expenses incurred before the insurer agrees to fund them

• Cases the insurer assesses as having no reasonable prospects of success

• Any dispute with Rhino Protect or the insurer

• VAT, where you are VAT-registered

Each section also has its own specific exclusions. The employment disputes section, for example, doesn't cover redundancy payments or benefits due under a contract of employment. The debt recovery section doesn't cover disputed debts - only uncontested ones where the amount owed is clear.

The legal advice line: use it before you act

Your policy includes access to a free legal advice line. This is a confidential telephone advice service covering UK law, and it's available to you as a policyholder at any time.

For employment matters in particular, calling this line before you take any action is a condition of cover. If you dismiss an employee, carry out a disciplinary procedure or handle a redundancy without calling the advice line first and obtaining authorisation, your claim under Section 1 may not be covered.

The advice line can't assess whether a specific claim will be covered under your policy. For that, contact the claims team. But for guidance on the right process to follow in an employment or legal situation, it's an invaluable resource.

How to make a Legal Expenses Insurance claim

You must notify the insurer as soon as you become aware of any event, circumstance or dispute that could give rise to a claim. Don't wait until proceedings have started. Early notification is important, particularly because of the 90-day reporting condition.

To report a claim or potential claim, contact ARAG:

Phone: 0117 917 1698

Email: newclaims@arag.co.uk

Online: arag.co.uk/claim

The insurer will review whether the claim has reasonable prospects of success and whether the legal costs are proportionate to the outcome sought before agreeing to fund legal proceedings. This assessment is a condition of cover. You can't instruct a solicitor and claim the costs back afterwards without prior written consent.

When proceedings are issued, you're free to choose your own solicitor, but if you choose someone outside the ARAG panel, the costs payable are capped at the rates set out in ARAG's standard terms. Using a panel solicitor avoids this cap.

How much does Legal Expenses Insurance cost?

Legal Expenses Insurance is one of the more affordable additions to a trade insurance policy. Rhino’s Legal Expenses Insurance costs just £7.08 per month, with up to £50,000 of cover for a variety of legal issues.

For sole traders and small trade businesses, this premium is modest relative to the potential cost of a single employment tribunal or defending a health and safety prosecution . Get a quote from Rhino .

Legal Expenses Insurance FAQs

What is the difference between legal expenses insurance and legal protection insurance?

They're the same thing - legal expenses insurance, legal protection insurance and legal cover are all terms used for the same type of policy. It covers the cost of legal action, whether you're pursuing or defending a dispute.

Do I need legal expenses insurance as a sole trader?

There's no legal requirement to have it, but for sole traders it makes particular sense. You don't have an HR department or in-house legal team to absorb the cost and complexity of a dispute. A single employment tribunal or debt recovery action can cost thousands in legal fees even before it reaches a hearing. Legal Expenses Insurance gives you access to professional legal support without that financial exposure.

Does legal expenses insurance cover employment tribunal claims?

Yes. Section 1 of the policy covers legal expenses in defending employment tribunal proceedings brought by employees, former employees or prospective employees. It also covers awards of compensation made against you, subject to the limit of indemnity. The key condition is that you must have sought advice from the Rhino Protect Legal Advice Line before taking any of the employment actions that led to the claim.

What happens if I don't call the legal advice line before dismissing an employee?

Failing to call the Rhino Protect Legal Advice Line before taking employment action, including dismissal, disciplinary procedures and redundancy, is likely to invalidate your claim under Section 1. This is a condition precedent to cover, not a recommendation. If you're facing an employment situation, call the advice line on 01480 852 080 before you act.

Does legal expenses insurance cover debt recovery?

Yes, Section 8 covers the pursuit of uncontested debts over £500 where you've already exhausted your normal credit control procedures. It doesn't cover disputed debts. You also need to notify the insurer within three months of the debt becoming due. Up to five debt recovery claims can be made in any one policy year.

Can I use my own solicitor?

Once legal proceedings are issued, you can choose your own solicitor. However, if you choose a solicitor outside the ARAG panel, the fees covered are capped at ARAG's standard panel rates. You must also notify ARAG of your proposed solicitor in writing before they are formally instructed. Using a panel solicitor is usually the simpler option.

Add Legal Expenses Insurance to your policy today

Don't wait until you're already in a dispute. Legal Expenses Insurance is most valuable when it's already in place - and the 90-day waiting period on new policies means the sooner you get covered, the better.

Get a Legal Expenses Insurance quote from Rhino

You might also want to read our guides to Employers' Liability Insurance and Public Liability Insurance.