Defense Costs

What Does Defense Costs Mean?

Defense costs refer to all expenses incurred in defending against a lawsuit. These costs include hiring a lawyer, court fees, investigations, fact-gathering, filing legal paperwork, and other related expenses. In the context of insurance, various liability policies typically cover these costs.

Insuranceopedia Explains Defense Costs

A liability insurance policy may provide defense cost coverage in one of two ways: it can either be included within the liability limit or offered as a separate limit.

For example, consider policies A and B, both offering liability limits of $100,000. However, policy B covers defense costs separately. In the event of a lawsuit where the policyholder owes $125,000 total—$100,000 in damages and $25,000 in defense costs—policy A would only cover $100,000, leaving the policyholder responsible for the remaining $25,000. In contrast, policy B would cover the full $100,000 in damages and the defense costs up to its coverage limits.