Coverage Question Series – Part 47
Post on March 22nd, 2019
This is a continuing series in which we address policy coverage questions that we routinely discuss with you and your colleagues. The answers provided are based on the basic policy form, currently LPLP-1s (effective for all policies new or renewed as of May 1, 2018). Refer to your specific policy and any endorsements attached thereto that may change coverage or the answers provided here.
I received a demand that is near my limit of liability, am I covered?
Yes, but, as expected, only up to the applicable limit of liability. Holding fast to the contractual policy limit of liability is one of the sacred tenets of insurance. So, it is important to know what coverage options affect that limit of liability. One major consideration is whether your policy has outside or inside defense coverage. OBLIC offers both outside limit and inside limit policies for the full-time, LPL policy form.
An inside limit policy, also called eroding limit policy, means that as defense costs are incurred defending the “Claim,” the amount of money available to pay a settlement or judgment is reduced by the defense costs incurred. Outside limit policies, on the other hand, do not reduce the amount of money available by the defense costs incurred; the defense costs are outside of the policy limits.
Once the limits are exhausted through the payment of a claim or multiple claims, OBLIC has the contractual right to withdraw any continuing defense and tender same back to the policyholder. See III. DEFENSE AND SETTLEMENT, pg. 4, LPLP-1s (05-2018). There are some terms, conditions, endorsements, and exceptions that may affect outside or inside limits that are dependent on the individual policy and the “Claim” asserted.
Pro-tip: Defense costs can be substantial. In some cases, defense costs alone can easily exceed six figures. Review your coverage annually at renewal and make sure you have enough coverage, either inside or outside limits, to protect you and your practice from personal exposure.
As you should expect, these Q&A scenarios are based on simple hypotheticals. Coverage determinations for an actual claim are ultimately based on the unique facts, applicable law, and the Terms, Conditions, Limitations, Exclusions, and Endorsements of your policy.
Carl Marsh, Esq.