Whether we like it or not, Australia is becoming a more litigious country.
People seem to be more willing to jump straight into legal action than ever before.
Depending on the reason for that legal action, you might be covered by your public liability insurance, but not always…
Public liability insurance will cover you in the event that legal action is taken due to property damage or personal injury suffered by a third party, that has resulted from your negligence.
But that’s not the only reason you’ll find yourself needing legal assistance, and as a sole trader you’re particularly exposed.
We certainly don’t want to be scaremongering, but it’s part of our job to highlight the risks involved in being a self-employed tradie, and which insurance products are available to protect you.
Legal troubles for tradies
Most tradies will go through their working lives without having a major legal issue, just like most of us won’t have our houses burn to the ground…
But that’s not to say it doesn’t happen, and shouldn’t be insured.
Leading legal expense insurance provider ARAG have put together some case studies that relate specifically to tradies:
SafeWork Prohibition Notice
“Following an accident on their worksite, SafeWork attended the premises and issued a Prohibition Notice requiring the business to stop work. The business challenged the Prohibition Notice on the grounds that the system of work was deemed safe. The insured contacted ARAG and a claim was lodged. ARAG appointed lawyers who ran proceedings to challenge the Prohibition Notice with the result being that the Prohibition Notice was cancelled. ARAG paid the business’ legal costs in relation to the proceedings.”
Contract Dispute
“Knock on Wood, a carpentry business, was approached by a customer to install skylights in their customer’s home. Knock on Wood is a small enterprise and engaged a Skylight contractor to supply and install the skylights. The skylights were installed and not properly sealed. The cost of installation of two skylights was $7,000. Following complaints by the customer, Knock on Wood arranged for the skylights to be replaced by a different contractor, they then claimed damages from the original contractor. The originally contractor refused to compensate Knock on Wood. Knock on Wood contacted their broker who then contacted ARAG Claims team, and formally lodged a claim on behalf of their client. ARAG reviewed and accepted the claim, appointed lawyers who forwarded a demand for payment of compensation to the contractors which resulted in negotiations and a quick settlement with damages paid to Knock on Wood. As there was a nil excess there were no out of pocket expenses and ARAG paid the legal costs incurred.”
Tax Protection
“Perfect Plumbing has been lodging its BAS statements and Tax returns regularly. The ATO has announced its intention to look at compliance in several industries including the plumbing industry. The then ATO randomly selects Perfect Plumbing for a tax audit. After preliminary inquiries the ATO advised Perfect Plumbing’s accountant that it intended to audit their BAS lodgements. ARAG appointed accountants to assist with the audit and demonstrate BAS has been appropriately accounted for. ARAG met all costs of the appointed accountant other than the excess which was paid by Perfect Plumbing to the appointed accountant.”
Contract Dispute
“Bright Spark Electrics purchased bespoke lighting, with accompanying accessories for a large residential project. Mid-way through the installation the client changed their mind and wanted different lights. They asked Bright Spark to cancel the remaining order. Bright Spark explain that the client will need to pay for the change as the lights were non-refundable. The client agreed and Bright Spark ordered and installed new lights. However, when issued with the final invoice, the client then refused to pay for the unused lights. The client refused all requests for payment and denied they had agreed to pay for the unused material, despite text messages and emails. Bright Spark contacted the ARAG Legal Information Helpline, and then referred to ARAG claims. Lawyers were appointed to recover damages from the client. After debt recovery proceedings commenced the client agreed to pay for 80% of the total invoice. ARAG paid all legal costs incurred in the proceedings, and Bright Spark Electric paid a $1,000 excess.”
In a perfect world we wouldn’t need lawyers and accountants to settle disputes, but it’s a far from a perfect world…
As a sole trader your exposure to such matters can be even more serious, since you’re personally liable for any legal costs incurred by your business.
Legal expense insurance can give you considerable peace of mind, knowing that you have access to legal assistance when you need it, without ending up with a huge legal bill.
How much does it cost?
As with any type of business insurance, the cost of legal expense insurance will vary depending on the size and type of business you run.
Our experience shows that for sole traders, legal expense insurance will sometimes cost no more than your public liability insurance.
So we could be talking well under $1,000 per year.
Compare that to the cost of a solicitor, which could be anything up to $3,000 per day if you end up in court, and it’s incredible value.
Included in the policy is access to a legal helpline, so even if you just need some quick advice and don’t end up in court, you can still benefit from the policy.
Doesn’t public liability cover legal costs?
Yes, public liability insurance will cover legal costs, or more specifically, your defence costs.
But it only covers defence costs for something that will be (or could be) a public liability insurance claim.
If the potential claim relates to property damage or personal injury suffered by a third party, then your public liability policy may cover those legal / defence costs as part of the overall claim.
But if the issue is not related to a public liability claim, then it will not cover any legal or defence costs.
This could include contractual disputes, licensing issues, employment disputes, tax audits or many other potential legal issues which don’t relate to public liability insurance.
What if I’m not a sole trader?
Legal expense insurance is available for Pty Ltd companies, it’s just that this guide focuses on sole traders.
We can help trade businesses of any structure – company, trust or otherwise – with legal expense insurance.
Next steps
We know that for most sole traders, the cost of an insurance policy is a major consideration.
If what you’ve read so far has piqued your interest, the next step is to request a quote from us.
For existing Trade Risk clients we recommend speaking with your dedicated account manager. If you don’t have their details, call our office on 1800 808 800 and we’ll transfer you through.
For new clients, call our office on 1800 808 800 and one of our brokers will help you out with quotes and information.
