Your small business is important to you, which is why you already have proper insurance in place. You don’t want to worry about paying out because someone slipped at your office. You like to focus on growing your business.
What’s more, you take pride in running your business legally. You make sure that you keep your general liability insurance up to date and your business licence valid.
You’ve already got the basic business insurance that every small business needs, but there are also other types of business insurance, like business legal insurance. Find out what is business legal protection insurance, and why you might need it.
What is Small Business Legal Insurance?
Business legal insurance, or legal protection insurance, is insurance that pays for advice and representation from lawyers. Lawyer fees can quickly add up to thousands of dollars, especially if you end up in court, so business legal protection insurance could save a lot of money for your small business.
Legal protection insurance can cover three areas:
- Legal advice and representation if someone sues your business
- Legal advice if you bring a lawsuit against someone else
- Legal advice about intellectual property and branding
Not every legal expenses insurance policy includes the cost of suing someone else and advice about intellectual property. Read the fine print carefully.
Types of Legal Protection Insurance
There are two main types of legal insurance for small business:
- Before-the-event cover (BTE)
- After-the-event cover (ATE)
BTE Legal Expenses Insurance
BTE business legal insurance starts before anyone sues your business. Like any other business insurance policy, you’ll pay a premium every month or year. It’s the most common type of commercial legal expenses insurance, and the cheapest.
ATE Legal Expenses Insurance
ATE legal protection insurance is coverage that you can buy after someone has already started a lawsuit against you. It’s more expensive than BTE legal expenses insurance.
Why Small Businesses need Legal Expenses Insurance?
1. Lawsuits are Expensive
If someone sued your small business, you could have to pay:
- Attorney fees from $100 up to $1000 per hour, depending on the size of the legal firm (large firm have bigger fees) and where you live (attorneys in big cities like New York and San Francisco charge more than those in small towns).
- Complaint filing fee, around $300.
- Motion filing fee of $40-$150. You’ll have to pay this every time someone files a motion - and there’s no way to know how many motions will be filed.
- Daily depositions. Cost is around $1,000-$2,000, if the court has to interview witnesses as part of the lawsuit.
- Bonded copy fee of approximately $300, to make legally accepted copies of official documents.
- Expert witness fee of $200-$600 per hour, if needed. Expert witnesses can include doctors, engineers, psychiatrists, and more.
2. A Lawsuit can Happen to Any Business
Consider these statistics:
- One-third of small business owners say they’ve been sued or threatened with a lawsuit
- Litigation costs small businesses more than $182 billion each year
- 50% of all civil lawsuits are brought against small business owners
3. It’s Hard to Stop Unhappy Employees
There are many ways that an unhappy employee could sue your small business. Here are some examples:
- You have an argument with one of your photographers about the best place to take wedding pictures. They quit in anger. 5 months later, they sue you for thousands of dollars in back pay.
- You’re looking for an assistant for your floor cleaning business, and you interview a 50-year-old woman with a bad back. You don’t think they’ll be able to cope with the physical demands of the job, but they sue you for sexual and age discrimination.
- One of the workers in your bookkeeping business racially insults another worker. The insulted employee sues your business for racial harassment.
The average cost of settling out of court for an employee lawsuit is around $75,000. That can rise to over $200,000 if you lose your case in court.
4. Infringement of Intellectual Property Rights is an Easy Mistake
No matter how careful you are, you could still accidentally infringe on someone else’s property rights. It could be that the name of your business is almost the same as a similar business in another town, or your logo looks too much like that of a competitor. Even if you never saw the other business’ name or logo, they could still claim that you stole it from them.
5. Contract Disputes Happen Frequently
Contract disputes are the cause of 60% of business lawsuits filed each year. You might get sued by a client for not completing a project on time, or not meeting their needs. For example:
- You agree to retile a customer’s bathroom by September, but your assistant gets the flu and can’t work for several weeks. The client sues you for completing the project 3 weeks late.
- You do a client’s tax return. They complain that you didn’t manage to find enough deductions to reduce their tax bill, and sue you for not fulfilling your contract.
- A bride hires you to do her makeup for her wedding day in 6 months time. A few days before the wedding, you get a date for an important operation for your child - on the same date as the wedding. You apologize to the client and recommend a friend, but the bride sues you for breach of contract.
Note: Many of these lawsuits are not covered by your general liability or professional liability insurance.
Legal Protection Insurance is a Smart Choice for Every Small Business
These just some of the reasons why your small business could be sued. You may also be taken to court because a product you sold injured someone, because someone got hurt on your premises, or because a client accuses you of sexual harassment, to give just a few more examples.
Even if the plaintiff drops the claim before it goes to court, it could still cost you many thousands of dollars on legal costs. You could have spent that on growing your business, making business legal expenses insurance a wise investment for most small business owners.
