Defense Within Limits
Key Takeaway
A policy structure where defense costs are paid from and reduce the available policy limits. This is also called an eroding limits policy.
Definition
A policy structure where defense costs are paid from and reduce the available policy limits. This is also called an eroding limits policy. As defense costs accumulate, the remaining amount available for settlement or judgment decreases. This is the standard structure for most legal malpractice policies and makes adequate limit selection critically important.
Why This Matters for Law Firms
This term defines the boundaries of what your insurance will and will not pay for. Law firms that misunderstand coverage terms risk discovering gaps in protection only after a claim has been filed, when it is too late to remedy the situation. Reviewing these terms with your broker before binding coverage is a critical risk management step.
Example Usage in Context
During a coverage review meeting, the firm administrator might note: "Our policy includes a defense within limits provision -- let's make sure we understand exactly what that means for our specific practice areas before we sign off on the renewal."
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