Are you protected from unforeseen legal issues?

  • May 17th, 2023 at 9:40 am

A small business owner’s list of risks can be overwhelming. Often, owners learn on the job, try their best to figure it out and lean on family and friends for help. The challenges of running the day-to-day business operations are where the real difficulty lies, as owners find themselves having to do tasks outside their experience and expertise. A carpenter may be an excellent craftsperson, but they certainly didn’t count on also having to be an accountant and IT technician when they set up their contracting business.

 There’s an abundance of software that helps business owners navigate running the day-to-day operations, such as financials and bookkeeping programs, HR (Human Resources) and staff management, inventory control and sales software. However, the software that helps owners deal with legal matters and assistance is more challenging. In most cases, “Chief Counsel” isn’t one of the positions at most small businesses. When something happens, the owner pays the cost of legal counsel and settling the disputes. Potentially creating cashflow issues for a small business and, at the very least, an unplanned expense on average anywhere from $5K to $50K per year. 

Australia is the second most litigious country in the world, after the USA*. Chances are a small business owner will deal with at least one legal dispute in the next three years, and even COVID isn’t an excuse: only 38% of legal disputes were pandemic-related over the past few years, the other 62% were due to simply running the day-to-day operations. And this isn’t an isolated incident; 70% of small businesses have dealt with at least one legal dispute in the last three years. That is up 230% compared to 2015! Legal risk is on the rise, and it is no longer an ‘if’ something happens; it is ‘when’.

According to the Australian Small Business and Family Enterprise Ombudsman 2018 report, 42% of sole traders were less likely to seek advice when disagreements. 

Most of the time spent resolving legal issues sees the average small business owner spending 61% of their time resolving contract disputes and collecting money owed. Not a very sunny picture, and it’s not surprising that 73% of owners feel that legal disputes are a source of mental stress.

Legal Expense Insurance (LEI) is a standard insurance held by most businesses across Europe, the UK, Canada, and the USA. ARAG Australia offers Business Essentials Insurance, a new level of cover, for as little as $260* per policy to access legal advice and representation for a fraction of the cost of engaging a lawyer. 

Business Essentials protects the essential parts of your business from the most common risks small businesses face covering areas such as employment, statutory licenses, tax protection, contract disputes including debt recovery, tenancy disputes and property and goods. 

With Business Essentials, you get more than a policy – you have 24/7 LegalAssist providing immediate access and support through our telephone line and document centre, providing invaluable services and resources to SMEs. CEO of ARAG Australia says, “ARAG’s new LEI cover, Business Essentials enables ‘access to justice’ for all micro and small businesses. Legal aid is only available to 0.4% of Australians. It is not currently available for commercial entities, limiting a select few Australians’ access to the legal environment. The industries we see taking up LEI cover are hospitality, construction & manufacturing, sole traders/tradies and SMEs with low to medium turnover and a small staff. A lot of critical issues that small and mid-sized businesses deal with are employment disputes, being paid on time by their clients, dealing with their suppliers, and contract disputes,” said CEO Natasha Gale. “LEI is important for them as their business grows; it provides legal cover for the pursuit and defence for insured events.”

Legal Expense Insurance is a must-have addition to your insurance program. Legal expense insurance gives businesses access to legal advice and representation when they may otherwise find it too costly to seek legal advice when a dispute arises. Usually, they need more resources to seek professional legal help across many aspects of their business, which can make them vulnerable to conflicts. The prohibitive cost of legal disputes becomes a barrier for these businesses to assert their rights. Legal expense insurance is an affordable solution for companies to ensure they can pursue or defend themselves when necessary.

An example of a LEI policy supporting a small trade business:

Bright Spark Electrics have purchased specific bespoke lighting, with accompanying cables and power points for a residential project. Midway through the installation, the client changes their mind and wants to alter the style of the lights. They request that the electrician cancel the remaining order. Bright Spark explained that the client would need to pay for the additional changes because the lights and accessories are non-refundable and would be well-spent since they are custom to this project. The client agreed, and Bright Spark issued a new quote. Bright Spark ordered and installed new lights. However, when the client received the final invoice, which included the unused material and labour, the client refused to pay the extra fee despite agreeing to it. Despite correspondence to the contrary, the client denies agreeing to pay for the unused material. Bright Spark contacted the ARAG Legal Information Helpline. The matter was referred to the ARAG claims team. After assessing the current situation, the claims team appoint lawyers to recover damages from the client. After mediation and contact between the parties, the client agreed to pay 80% of the invoice. ARAG paid all legal costs incurred in the proceedings, and Bright Spark Electric paid their $1,000 excess.

Talk to your Insurance broker or contact one of the team at  ARAG – and check that risk off your list.

*excludes Fees and Charges