Defense in A/E Professional Liability Policy
When your firm receives a claim the first step in the claim process it to set your firm up with defense counsel. The insurance company will set this up for your firm, most insurance company have attorneys they work with on a regular basis. Keep in mind, the defense is for your firm, not for defense for your client.
The way most Professional Liability policies work is the defense costs are within the limits of liability. What this means if you have a limit of $1,000,000 and the defense costs on the claim were $50,000, the limits are reduced by that amount. This would leave $950,000 left for the settlement amount on the claim. Here is an example of the defense language in the policy:
The Company has the right and duty to defend any claim against the Insured even if any of the allegations of the claim are groundless, false or fraudulent. Defense counsel will be designated by the Company.
There are policies available in the marketplace that offer defense outside of the limits. What this means is the insurance company will have a specific amount that is just for defense. If your firm’s defense goes beyond that limit your firm will be required to pay for the additional defense. For example, the policy may have a defense limit of $10,000 and the actual defense costs for your firms claim is $25,000. Your firm would be responsible for the additional $15,000 for defense costs.
It is very important, when purchasing a policy, that your firm read the policy and endorsements to the policy to have a full understanding of the defense coverage. If you have questions on defense coverage on your design firms Professional Liability policy call or email your Professional Underwriters agent for assistance.