Legal Entity Cover is a type of business insurance that protects the company itself as a separate legal entity.
It covers the entity for financial losses due to lawsuits, regulatory actions, or contractual disputes.
Legal Entity Cover is typically more applicable to non-individual entities such as corporations, LLCs, and partnerships. This is because these structures exist as separate legal entities from their owners, meaning they can hold assets, enter contracts, and be sued independently of the individuals running them.
The cover is designed to ensure that the business, rather than individuals within it, is covered in cases of legal claims related to governance, compliance, or shareholder disputes.
The coverage is often included in Directors & Officers (D&O) insurance, helping safeguard the organization’s financial stability by covering legal defense costs, settlements, and damages arising from claims against the entity.
For sole traders (sole proprietors), the business and the individual are legally the same, so there is no separate legal entity to insure.
As a result, a sole trader’s personal assets may be at risk in legal claims against the business and would usually need general liability insurance, professional indemnity insurance, or business interruption insurance to protect against business-related risks.
Did you know?
A surprising fact about Legal Entity Cover is that it can sometimes extend to cover wrongful acts committed by past executives or directors, even if they are no longer with the company.
This means that if a former leader made decisions that led to legal action against the company years later, the legal entity itself may still be protected under its existing Directors & Officers (D&O) insurance or similar coverage. However, this depends on the policy’s retroactive date and run-off coverage provisions.
This can be particularly important in cases of financial mismanagement, regulatory breaches, or shareholder lawsuits that take time to surface.
References and further reading about Legal Entity Coverage: