TL;DR
Comparison
Should I pay more for defense outside the limit?
Whose decision: Any senior care operator at renewal, and specifically anyone comparing two quotes on price.
Last updated
| Factor | Defense inside the limit | Defense outside the limit |
|---|---|---|
| What the limit represents | A ceiling on defense and settlement combined | A ceiling on settlement only; defense is paid in addition |
| Policy language to look for | Claim expenses are part of, and not in addition to, the Limits of Liability | Claim expenses are payable in addition to the Limits of Liability |
| Effect of a long defense | Erodes the amount available to the claimant, sometimes substantially | No effect on the amount available to the claimant |
| Interaction with the excess tower | Can create an argument about whether the underlying was exhausted by payment of damages | Exhaustion is clean; the excess attaches as intended |
| Typical in senior care | Yes, this is the market default | Available and priced; scarcer at low retentions |
| Typical in general liability elsewhere | Uncommon | Yes, this is the default |
The recommendation
Defense outside the limit is worth paying for in this class, and the way to find out what it costs is to ask for the program quoted both ways so the difference is a number rather than an assumption someone made on your behalf.
Where it cannot be bought, and in the hardest segments it sometimes cannot below a certain retention, the honest response is to raise the limit rather than to treat the stated limit as though it were fully available. That is arithmetic, not caution: on an eroding limit the limit has to fund defense and settlement together.
The one thing not to do is compare two quotes on premium without normalizing this term. A quote that is cheaper because defense is inside the limit is not cheaper, it is a different product.
Follow-up questions
Go to the Limits of Liability section of the policy rather than the declarations page. The declarations page shows a number; the limits section shows what that number includes. Then check each excess layer separately, because layers do not always match.
It is a separate question. Whether defense erodes the policy limit and whether defense erodes the self-insured retention are two different terms, and a program can be structured either way on each independently. The worst combination is defense inside the limit and defense not counting toward the retention.
Go deeper
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