What Does Defense Costs Mean?
Defense costs refer to all the costs of defending against a lawsuit. These expenses include the cost of hiring a lawyer, court fees, investigations, gathering facts, filing legal paperwork, and other related costs. In terms of insurance, various liability insurance policies cover these expenses.
Insuranceopedia Explains Defense Costs
A liability insurance policy may offer defense cost coverage in one of two ways: It may be included as part of the liability limit or as a separate limit.
For instance, imagine that policy A and B both offer liability limits of $100,000, but policy B covers defense costs separately. Following a lawsuit, the policyholder must pay $125,000 total, with $100,000 in damages and $25,000 in defense costs. Policy A would only cover $100,000 and leave the policyholder responsible for the remaining $25,000, while policy B would cover $100,000 and the defense costs up to the coverage limits.