The real Q is who decides you are illegal. In these circumstances it can only be a court interpreting the regs (during a prosecution) which are so vague they can be argued about for ages.
I think this is the hub. If our regulator, CAA, can't give any definitive angle or interpretation, and Insurance companies have no clue, like the rest of us, then it can be easily argued that pilots/operators who have covered the angles, and have remained as current and licenced as possible, then frankly, I do not feel there is much to worry about, re illegality/prosecution issues.
The chance of your insurer giving a written note to that effect is probably zero however. Has the CAA offered anyone written confirmation of their own personal status, when asked by telephone????