Legal Expense Insurance - Scope and Limitations

Josef Bergt
2023

Introduction

The realm of legal expense insurance is intricate, governed by a plethora of stipulations that delineate the scope of coverage, the types of legal disputes it encompasses, and the conditions under which the insurer is obligated to bear the costs. This article aims to elucidate the complexities inherent in legal expense insurance policies, thereby aiding prospective policyholders in making informed decisions that align with their specific legal needs and life circumstances.

The Principle of Speciality in Legal Expense Insurance

Legal expense insurance operates under the principle of speciality, meaning that coverage is not universally applicable but is instead offered in distinct packages tailored to specific attributes or activities of the policyholder. For instance, coverage may be segmented based on whether the insured is self-employed or not, or whether they are an owner or holder of a vehicle. These packages then cover specific types of legal risks (e.g., liability, employment, property, and tax litigation) that are pertinent to the insured's particular attributes or activities. Consequently, it is imperative for individuals to meticulously assess which areas of their life require legal protection before entering into an insurance contract.

Coverage Limitations and Exclusions

It is crucial to note that legal expense insurance policies generally cover only future legal disputes. No coverage is provided for legal issues that arose prior to the inception of the policy or during any stipulated waiting period, which typically ranges from three to six months. This limitation serves as a safeguard for insurers, preventing individuals from purchasing coverage only when a legal dispute is imminent or has already occurred.

Termination Provisions

The insurance contract can be terminated at the end of the insurance year with a three-month notice period, without the necessity of providing any rationale. This is termed as a standard expiration termination. Additionally, both the insurer and the insured have the right to terminate the contract under specific conditions following a claim, known as extraordinary or premature termination. While many insurers adopt standard conditions set forth by the insurance industry, they also retain the discretion to deviate from any such conditions.

Data Processing and Privacy Concerns

Upon the conclusion of an insurance contract, policyholders are typically provided with a data processing leaflet as well as the insurance policy and general terms of insurance. Such disclosure is generally in compliance with legal obligations that the policyholder would have to fulfill when entering into a new contract.

Source: BaFin on Legal expenses insurance

Executive Summary:

• Legal expense insurance operates under the principle of speciality, offering coverage in distinct packages tailored to the insured's specific attributes or activities.
• Coverage is generally limited to future legal disputes, excluding issues that arose prior to the policy's inception or during a stipulated waiting period.
• Contracts can be terminated either at the end of the insurance year or under specific conditions following a claim.