B) Liability or legal expense The term “legal liability or expense” means (i) any legal or professional expense incurred in connection with any claim, proceeding or action; (ii) the amount and any costs incurred in connection with any settlement of any claim, proceeding or action; and (iii) the amount of,. When a legal expense is incurred in connection with the operation of a business to generate taxable income, it is generally allowed as a deduction. The exceptions are when legal fees are capital fees, domestic or private in nature, if they are specifically excluded by another section of income tax legislation, or will be incurred to obtain exempt and non-taxable non-exempt income. Often, eliminating budgets entirely can be a false economy; however, by means of insurance, replacing a legal budget with a smaller insurance premium for legal expenses frees up capital while maintaining access to funds in the event of a dispute.
To avoid this situation, it is common for insurers (who want to provide additional legal protection to their customers) outsource their legal expenses section to a specialized provider. Legal expense insurance is not a substitute for your liability policies, but is an additional product to ensure that your company's broader legal risks are protected.