Defense costs inside the limit of liability
When defense costs are paid inside the limit of liability, the money spent on legal defense reduces the total coverage available for paying damages or settlements. For example, if your policy has a $1 million limit and you incur $200,000 in defense costs, only $800,000 remains for damages awarded. This means that if a claim results in high damages—such as a resident injury or staff misconduct—the remaining coverage might not be enough to cover the full amount, leaving your community responsible for the difference.
This structure can be risky for senior living communities, especially with the potential for lengthy or costly legal battles related to general liability (e.g., slip-and-fall incidents) or professional liability (e.g., errors in resident care or medical services). Defense costs inside the limit can quickly deplete your coverage, increasing your financial exposure.
Defense costs outside the limit of liability
In contrast, when defense costs are paid outside the limit, the money spent on legal defense does not reduce the amount available for damages or settlements. Using the same example, if your policy has a $1 million limit and defense costs are outside the limit, you can spend $200,000 on defense without affecting the remaining $1 million for damages.
This structure provides greater financial protection, as your community is less likely to face out-of-pocket expenses for damages if a claim is settled or awarded. It also encourages insurers to provide vigorous defense, knowing that their costs won’t erode the coverage for damages.
Always review your policy and consult with an insurance expert to choose the best structure for your senior living community’s needs, as making informed decisions now can help you navigate legal challenges with confidence and peace of mind—reach out to our senior living practice to learn how we can support you.
