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Defence Costs Inside The Limit vs. Outside The Limit

defence costs

Defence Costs Inside The Limit vs. Defence Costs Outside The Limit

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Knowing if your defence costs are inside the limit or outside the limit is very important in the event of a claim. It can determine the amount of available funds within a policy and in turn, affect your defence strategy, and financial outcome when a claim is made.

Inside the limit means that all defence costs are deducted first from the policy limit, which cuts into the overall limit available to pay for monetary damages.

Outside the limit means there are separate limits or unlimited funds available for defence costs. When defence costs are outside the limit the cost of defending your case does not erode your policy limits available to pay settlements resulting.

These defence expenses make up a large sum of an insurance claim, whether it be in errors and omissions liability, commercial general liability or a directors & officers insurance claim.

Defence costs are typically made up of the following:

  • Lawyer fees
  • Court costs
  • Costs of filing legal papers
  • Costs of expert witnesses
  • Costs associated with an investigation

Defence expenses add up quickly and could erode your limit of liability leaving you vulnerable to cover costs out of your own pocket. Below is a quick snapshot of a typical claim and how defence costs inside the limit vs. defence costs outside the limit are handled:

Expense Defence Costs Inside the Limit Defence Costs Outside the Limit
Defence Cost $350,000 $350,000
Damages $875,000 $875,000
Total Damages $1,225,000 $1,225,000
Total Paid by Insurance Company $1,000,000 $1,225,000
Your Obligation $225,000 $0

If you’re not sure if your organizations insurance policy has defence costs inside the limit vs. outside the limit , talk to an ALIGNED Advocate today.

ALIGNED Across Canada   100% Canadian owned, ALIGNED is a premiere insurance brokerage that serves more than 1,400 clients across the country. ALIGNED’s offices in Toronto, Calgary and Vancouver are supported by a national operations centre in Cambridge, Ontario. Uniquely within the industry, ALIGNED creates, negotiates and delivers the best business insurance and risk management strategies/solutions to organizations like yours.

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