The Bonus Value of Your Liability Insurance Policy: Litigation Defense
Your liability insurance policy has the obvious value of indemnifying you (up to the policy limit) in the event you are held liable for a covered loss. However, liability insurance policies like commercial general liability and professional liability policies have significant value beyond that principal purpose. Beyond that primary benefit, your liability insurance carrier might also be obligated to pay for an attorney to represent you in a lawsuit that involves a claim that might be covered under your policy. That would not only relieve you of that financial responsibility, but those defense costs might also be paid in addition to the policy limit, depending on the terms of your policy.
Your carrier’s obligation to defend you is generally governed by the terms of your policy and the law of the state in which you purchased the policy. Therefore, it is important for you to review your policy to make sure you comply with all notice and cooperation requirements, to avoid forfeiting benefits under the policy. Along with the terms of your policy, statutes and case law govern the particulars of an insurance company’s obligation to provide you with a defense in a lawsuit. For example, under Florida case law, your carrier will likely be obligated to defend you against the entire claim being asserted against you, even if only a portion of the claim is covered by your policy. Also, if your insurance company agrees to provide you with an attorney to defend you, a Florida statute will probably require your carrier to provide a “mutually agreeable” attorney, empowering you to object to your insurance company’s offered attorney.
Litigation defense is potentially a significant benefit of your liability policy. Not only might the defense costs be paid in addition to your policy’s limit, but if the covered claim has a relatively low dollar value, the defense costs paid by your carrier could easily exceed what would otherwise be paid under the policy. Therefore, if a claim is asserted against you that might be covered by your liability policy, it is important to not only give your insurance company notice of the claim, but also request that your carrier defend you under the policy, to make sure you get the full value of your policy.