06. How does legal-expenses insurance work?

There are two basic types of legal-expenses insurance. They are called 'before-the-event' and 'after-the-event' insurance and they work in different ways.

After-the-event insurance
An after-the-event policy is for when you are already in a dispute, and you need to cover the cost of going to court and having to pay the other side's legal bill if you lose your case.

As well as paying for you to take legal action, this type of legal-expenses insurance may also cover costs in some cases brought against you. However, don't presume it will cover the costs. Check with your insurer first.

Before-the-event insurance
A before-the-event policy is mainly sold together with other insurance (for example, car insurance to cover car-related disputes, or house insurance). It cannot generally be bought once a problem exists. In effect, if you have this kind of insurance to cover your costs, you would not need to enter into a conditional-fee agreement.

Before-the-event insurance pays your costs only if your insurance company thinks you have a good chance of winning your case. The insurance will usually pay for:

• your solicitor's fees and expenses;
• costs for expert witnesses;
• court fees; and
• your opponent's legal costs.

However, it won't cover any compensation you are ordered to pay if you lose your case.

Also, this type of insurance does not cover you for all types of legal problem, nor will your insurer necessarily take your case on, which is why it is important to get advice.

If you want to use insurance to cover your legal costs, there are several conditions that you need to remember.

• In most cases, you must report the incident that your case is about within six months of it happening.
• Most policies say you can choose your own solicitor, but many say you can do this only once legal proceedings have started. The insurance company can turn down your choice of solicitor if they don't agree with their costs, or if they don't think the solicitor has the right kind of expertise.
• Once the case has started, most policies say that you must accept any reasonable offer from your opponent to settle your case. If you don't accept an offer, you may no longer be covered by the insurance, and you will have to pay the costs from that point.
• There may well be a limit on the amount of legal expenses that the policy will cover (for example, £25,000). If you reach that limit, and your case has not yet finished, you may have to pay out of your own pocket to finish the case. And some policies may require you to continue your case once the limit is reached - even if you want to pull out - if you are to benefit from the protection provided by the policy.  This would mean that you have to take your case to court to be able to claim anything under the policy.

Where can I buy before-the-event insurance?
If you already have home-contents insurance (for your flat or house) you can buy legal-expenses insurance as an 'add-on'. It should cost you between £10 and £50 a year. Your policy with the add-on will usually cover you for the following types of case.

• Personal injury (if you or a family member, are injured or killed due to someone else's negligence).
• Employment issues (for example, if you are dismissed unfairly, or injured at work).
• A consumer problem relating to a contract to buy or hire goods and services.
• Loss or damage to your property through someone else's negligence.
• Disagreements with neighbours about things like boundaries or noise.
• Tenancy disputes if you live in a rented house or flat.
• Contract problems when you are buying or selling a house or with non-structural building work (redecoration, for example).

But you should always check first whether the insurance will cover any problem you want to take legal action over.

Add-on insurance normally won't cover disputes relating to:

• problems with government organisations (your local council, for example);
• slander or libel;
• the amount of an insurance claim;
• a problem about a will or inheritance; or
• personal injury after a road accident if you were the driver (although this can be covered through your car insurance).

If you belong to a trade union
Your trade union may also have cover for certain (mainly work-related) disputes. However, trade unions are increasing their non-work-related legal services, so it is worth talking to your union representative to see if they could help pay for your court case. And remember that trade unions offer legal services not just to members, but also to your husband or wife, partner and other close relatives. Your trade union can also instruct its lawyers on a 'no-win no-fee' basis.