What legal cover covers, and what the policy has to spell out

Legal cover is insurance that pays legal expenses and the costs of litigation. The Insurance Act 18 of 2017 lists it as the legal expense class of non-life insurance. What it pays for in practice, which lawyers you can use and what it leaves out are all set by the policy wording, so that is where to look.

Olvian is a lead-referral service, not an insurer, broker or legal adviser. A licensed provider that pays Olvian a fee may call you back. This guide explains how the law frames the product and what to ask that provider.

What is legal cover under the law?

The Insurance Act sorts non-life business into classes in Table 2 of Schedule 2. Class 9 is "Legal expense", described as covering "any legal expenses and costs of litigation". It has two sub-classes, personal lines and commercial lines.

The Act defines "personal lines" as non-life insurance business where the policyholder is a natural person acting otherwise than solely for the purposes of that person's own business. Commercial lines is the other sub-class. A policy bought by a person for themselves and their household is personal lines. One bought for a business is not.

The definition of a non-life insurance policy matters too. It is an arrangement in which a person, in return for a premium, undertakes to meet insurance obligations that fully or partially indemnify loss "on the happening of an unplanned or uncertain event". Legal cover is therefore about legal costs arising from an uncertain future event, not about a legal problem that already exists.

What matters might a policy cover?

The Act does not list them. That is left to the policy. A policy might describe matters in groups, for example work disputes, family matters, criminal matters, civil claims, contracts and leases, and consumer or debt disputes. Whether a particular policy includes a group, how it defines it and what it leaves out is in the wording.

We do not say which matters policies "usually" include, because the law does not require any set, and a general statement could mislead you. Ask the provider for the list of covered matters and the list of exclusions, in writing, before you decide anything.

Does legal cover pay for a dispute that has already started?

The definition quoted above is the idea behind a line drawn at the start of cover. An event that has already happened is not uncertain. A legal policy may therefore exclude a dispute that began before cover started, or before a waiting period ended. Check this in the policy itself. Two questions help:

1. What is the date a dispute is treated as "starting": the incident, the first letter of demand, or the date I first told you about it?
2. Is there a waiting period before I can claim for a particular kind of matter?

The Demarcation Regulations that limit waiting periods for gap cover and hospital cash plans are about health-related policies. For legal cover, the policy sets its own waiting periods. If you have a problem now, ask the provider what the policy says about it, and see our guide on legal cover, Legal Aid and the CCMA for other routes.

Who pays the lawyer, and who chooses the lawyer?

This is a matter for the policy. Questions to ask:

• Do I have to use a lawyer on your panel, or can I choose my own?
• If I choose my own, is the amount you pay limited, and who pays the difference?
• Do I need your approval before I instruct a lawyer?
• Do you pay the lawyer directly, or do I pay and claim back?
• Does the cover include costs a court orders me to pay the other side, or only my own legal fees?

None of these has a single legal answer. Policies differ, and so the answers should be in the schedule and in the claim procedure.

Whoever pays, the lawyer is still a legal practitioner whose professional conduct is regulated by the Legal Practice Council. The insurance policy decides who pays the fees. It does not change the lawyer's professional duties to you, and a complaint about a lawyer's conduct goes to the Council, not the insurer. Our guide on legal cover claims and complaints explains the difference.

What does "indemnify" mean for legal costs?

The Act's definition says a non-life policy "fully or partially indemnifies loss". To indemnify is to make good a loss. "Partially" is important: a legal policy does not have to pay every cent of every legal bill. It may pay up to a limit, for certain stages of a matter, or only at a fixed rate for a lawyer's time.

For you, that means two things. First, ask what share of a typical legal bill the policy would meet, not just whether it "covers" the matter. Second, ask who bears the rest. Olvian cannot tell you what a policy will pay for your situation, because that depends on its terms and the facts.

Is there a limit on what a legal policy pays?

The policy will say whether it has one and how large it is. Ask for the limit per matter, the limit per year, and whether limits differ by type of matter. We do not give amounts because they differ by provider and by policy, and we do not know what yours will say.

Who is covered under the policy?

Look for the definition of "insured person". Does the policy cover only the policyholder, or also a spouse and children? Are children covered after they turn 18? Does it cover legal problems arising from your work, or only your private life? The personal lines versus commercial lines distinction in the Act is a reminder that who the policy is for is a defined term.

Who is allowed to sell legal cover?

An insurer must be licensed to carry on insurance business. The Insurance Act says an application for a licence must be made to the Prudential Authority (section 23(1)).

Conduct is covered by the Policyholder Protection Rules. They set rules on how claims must be handled, which our guide on legal cover claims and complaints explains. The Rules we cite there apply to short-term policies, and the provider can tell you which rules apply to yours.

What should I ask the provider who calls me?

Olvian does not advise on whether anyone needs legal cover or which policy to take. These are factual questions the licensed provider can answer:

1. Which matters are covered, and which are excluded?
2. When does cover start, and how do you decide when a dispute began?
3. Which waiting periods apply to which matters?
4. Can I choose my lawyer, and how are they paid?
5. What are the limits per matter and per year?
6. Who is covered, and does the policy include my household?
7. What do I do first when a legal problem arises, and who do I call?
8. How do I complain if you refuse a claim?

Sources

• Insurance Act 18 of 2017, Government Gazette 41388, 18 January 2018: section 1 (definitions of non-life insurance policy and personal lines), section 23(1), and Schedule 2, Table 2, class 9. https://www.gov.za/sites/default/files/gcis_document/201801/41388gon32insuranceact2017.pdf
• Policyholder Protection Rules (Short-term Insurance), Government Gazette 41329, 15 December 2017: Rule 17.
• Legal Practice Council, how to lodge a complaint. https://lpc.org.za/members-of-the-public/how-to-lodge-a-complaint/ https://www.gov.za/sites/default/files/gcis_document/201712/41329gon1433.pdf