Legal liability poses threat to Canadian small businesses

Legal liability poses threat to Canadian small businesses | Insurance Business Canada

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Legal liability poses threat to Canadian small businesses

Study highlights coverage gaps

Insurance News

By
Mika Pangilinan

Legal liability has emerged as a significant concern for small businesses throughout Canada. A recent study reveals that seven out of 10 small businesses have faced at least one legal issue in the past three years.

ARAG Legal Solutions Inc. surveyed small-business owners and found that over half of respondents reported that the legal disputes they encountered had a substantial or moderate financial impact on their enterprises. Additionally, 70% admitted to spending a considerable amount of time dealing with legal issues.

The survey also revealed the various ways in which small-business owners grapple with legal expenses. It found that 41% of owners would absorb these costs as a necessary part of conducting business.

Around 23% indicated that they would seek financial assistance by accessing a business line of credit or securing a loan, 21% planned to reduce other operational expenses, and 8% considered divesting business assets to meet their legal obligations.

Strikingly, approximately 37% of respondents expressed uncertainty regarding their ability to cover legal costs.

“This research shows that there is a gap in commercial portfolios, because a lot of commercial portfolios will not cover what we cover to a large degree,” said Jeff Kless, ARAG’s vice president, marketing and strategic initiatives. “So, we will fill in that gap and help business owners save a ton of money.”

According to ARAG, while some commercial policies offer limited legal coverage, there are notable gaps in typical commercial portfolio coverage. Common exclusions include contract disputes, debt recovery, business license suspension, tax audits, and even speeding tickets.

Kless highlighted the inadequacy of regular commercial policies by pointing out that they fail to provide support in crucial scenarios, such as audits by the Canada Revenue Agency (CRA) or license suspensions. In contrast, legal expense insurance (LEI) offers protection in these areas.

The study also exposed a lack of awareness among business owners regarding their coverage for legal expenses within their commercial portfolios, with 31% of respondents stating they were uncertain whether they had any legal coverage at all.

“Our research really shows that we need to talk about it,” said Kless of legal insurance for commercial businesses. “It’s something we need to do as an industry, and just make business owners realize that it’s more than just a slip-and-fall policy. There are all these various things that are part of your day-to-day operations that could affect them financially, but more importantly, [it could affect] their time and mental health.”