Insurer Defense Obligations

Liability protection, which is part of any typical car or home coverage, has two distinct obligations. First, it is designed to protect you against your legal obligation to pay others because you have hurt them and/or have damaged their property. Second, and equally as important, it provides a legal defense related to lawsuits filed against you. In other words, besides paying for claims or suits, a liability policy also pays for related legal costs and court fees.

Defense costs generally include:

Attorney fees (including cost of legal staff and expenses)
Court costs of the applicable jurisdiction
Costs of filing necessary legal papers
If applicable, costs of expert witnesses
Costs associated with investigation, etc.

Defense Coverage can be offered in two ways. First, it can be provided as part of the insurance policy's liability limit or second, it could be offered as a separate coverage. You must read your policy carefully because the method has a huge impact on the amount of your insurance protection.

How about an illustration? Policy A and Policy B both provide liability insurance limits of $100,000; Policy A provides defense coverage as part of the insurance limits while Policy B gives separate protection. Now let's see what can happen:

Example: Jay Lowcare is sued by his son's teacher. The teacher came by drop off the son’s homework while the student is missing school due to illness. When the teacher started down the wooden stairs of the Lowcare's front porch, the second stair broke. The teacher fell to the ground and suffered cuts and compound fractures to his left leg. Medical and rehab costs totaled $95,000 and the defense costs were $18,000. Here's how each policy would handle the costs:

Expense	Policy A	Policy B
Defense Cost	$18,000	$18,000
Damages	$95,000	$95,000
Total Damages	$113,000	$113,000
Total Paid	$100,000	$113,000

If Jay Lowcare's protection worked like Policy A, Jay would be personally responsible for paying the remainder of the claim because the defense costs used part of the insurance limits. Policy B's method of providing coverage offers the most protection. If you're not sure how your policy handles the cost of your legal defense, talk to an insurance professional and make sure you get the coverage you need.

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