Claims Expenses Inside the Limits of Liability

In law, claims expenses are all costs associated with defending or making a legal claim.
The expenses can include attorney fees, expert witness fees, investigation costs,and court fees. If someone files a lawsuit against a responsible party, they must hire an attorney, prepare the required paperwork, conduct investigations, and pay court fees. All these costs can pile up,amounting to thousands of dollars. Many companies and high-risk individuals have insurance coverage to deal with such situations. All coverages either offer claims expenses inside the limits of liability (CEIL) or outside the limits of liability (CEOL). What does this mean? Let’s find out.

What Are Claims Expenses Inside the Limits of Liability (CEIL)?

Claims Expenses Inside the Limits of Liability (CEIL) is the standard coverage on most policies. With this coverage, the defense expense of a claim erodes the limit of liability. As a result, there’s a smaller amount left for claim settlement. Defense expenses include all costs mentioned earlier, except the cost of settlement. Let’s explain this with an example. A firm has an insurance limit of $1,000,000 per claim with a $1,000,000 aggregate for the policy term. Someone files a lawsuit against the firm, and the total defense costs add up to $150,000. The firm will have $850,000 remaining to cover settlement costs for this or any subsequent claim.

Impact of CEIL on Premium

When you choose CEIL, you get less coverage compared to a policy with CEOL. So, a policy with CEIL will have a lower premium cost. Besides CEIL, a party’s risk profile and type of coverage also impact the premium. Firms or individuals with a higher risk, such as finance or healthcare institutions, will have to pay a higher premium than their low-risk counterparts, such as a retail store.

Who Should Get CEIL Coverages?

The main industries that can benefit from coverages with CEIL include:

• Attorneys
• Engineers
• Architects
• Healthcare provides

Businesses that distribute or manufacture products should also opt for these coverages since they are at risk of liability claims. CEIL coverage is commonly a part of errors and omissions insurance and general liability insurance.

What Are Claims Expenses Outside the Limits of Liability (CEOL)?

Claims Expenses Outside the Limits of Liability (CEOL) provides an dditional limit of liability instead of eroding into your policy’s limits. In insurance with this coverage, the limit of liability is only applicable to the damages paid. Let’s go forward with the same example as above. A firm has an insurance plan with a policy term aggregate of $1,000,000 and a per-claim limit of liability of $1,000,000. If they opt for CEOL rather than CEIL, they will have an additional $1,000,000 in their policy. So, if the total defense costs turn out to be $150,000, they will have $1,850,000 in coverage. You can better understand CEOL by considering two ‘buckets’ of coverage. One bucket covers the defense costs, while the other is for settlement costs. When the company fights a lawsuit, the insurance provider will cover its defense costs from a separate bucket and the settlement costs from the other. That leaves the policy’s original limit of liability intact.

There are two types of CEOL options; full and limited. Here’s what they mean.

• Full

In full CEOL coverages, the extra defense cost is the same as the policy’s limit of liability. So, it’s just like our example above. The firm gets $1,000,000 CEOL coverage in addition to the $1,000,000 limit of liability of its insurance plan.

• Limited

Limited CEOL coverage is not the same as the policy’s limit of liability. It’s a lesser amount determined by the carrier. While this amount also covers defense costs like full CEOL coverage, it doesn’t equal the policy’s limits. For example, if a policy has a limit liability of $1,000,000 and the client gets limited CEOL on it, they may get a limited outside amount of $500,000 or $250,000.

Impact of CEOL on Premium

CEOL insurance coverages come with higher premiums since they provide more coverage. You can expect to see a 10% to 15% increase in the premium amount. To some, this may seem like an added expense. But for a high-risk organization, this is an additional fund to tap into for settlement payouts.

Who Should Get CEOL Coverages?

CEOL coverages are better for businesses with a high risk of legal expenses followed by large settlements. Manufacturing firms, healthcare companies, and accountants should get this coverage since it can mitigate their financial risk.

CEIL vs. CEOL Coverage: Which Is Better?

Whether you select CEIL or CEOL will depend on your business type and risk profile. Here are some factors to consider when deciding which of the two is better for your business.

• Budget: If you’re looking for a cheaper policy, opt for one with CEIL since it will have lower premiums. On the contrary, policies with CEOL have higher premiums due to their extended protection.
• Risk Profile: CEIL policies suffice for businesses with a low risk profile. For instance, retail and service industries rarely face large settlements. But if your business deals with legal cases often and the settlements are usually high, CEOL is the way to go.
• Insurer: The insurance company you choose will also determine whether you get CEIL or CEOL. Some companies only offer CEIL. Others may offer only limited CEOL. If you specifically need a full CEOL, look for a company with this offering.

Some insurance companies may also offer CEOL coverage with no cap for claims expenses.This is called unlimited CEOL and is not available for every policy. You should check with your insurer if they offer this.

Conclusion

Safeguarding yourself from the financial toll is an important step in ensuring your business remains afloat even when facing a lawsuit. Most general liability insurance plans come with an option between CEIL and CEOL coverage. The type of coverage you choose will depend on the insurer’s offerings and your risk profile. CEIL erodes your defense liability, reducing the amount available for settlements. Meanwhile, CEOL provides additional defense coverage, leaving the liability limit intact for settlement payments.