Procedural indemnity and legal expenses insurance

Many individuals and businesses have legal expenses insurance that covers part or all of their attorney costs in a dispute. The procedural indemnity plays a role in this context in two ways.

First: if the insured party wins, it receives the procedural indemnity from the losing opposing party. Depending on the policy terms, the insurer may recover this indemnity from the insured (subrogation), or leave it with the insured. This varies considerably from policy to policy and from insurer to insurer.

Second: if the insured party loses, it owes the procedural indemnity to the winning opposing party. Some legal expenses policies also cover this cost, others do not. It is therefore advisable to check your policy or contact your insurer before starting proceedings.

For businesses that are regularly involved in legal proceedings — such as debt collection agencies, leasing companies or construction firms — the procedural indemnity can be a significant annual cost or, when proceedings are successful, a substantial source of income. Accurate estimation when starting proceedings is therefore essential for sound cost management.