Defense Costs

Defense Costs refer to the expenses incurred by an insured party in defending against legal claims or lawsuits. These costs can include attorney fees, court costs, expert witness fees, and other related expenses.

Example #1

For instance, in a Directors and Officers Liability Insurance policy, if a company's director is sued for alleged breach of fiduciary duty, the insurance company would cover the legal defense costs incurred by the director in defending against the lawsuit.

Example #2

In a General Liability Insurance policy, if a business is sued for damages resulting from a customer slipping and falling on their premises, the insurer would cover the defense costs for the business in the lawsuit.

Misuse

Misuse of defense costs coverage could occur if a company deliberately engages in wrongful practices knowing they are not covered by insurance. For example, if a company knowingly violates environmental regulations and faces a lawsuit, expecting insurance to cover defense costs, this misuse harms the marketplace by rewarding unethical behavior and passing on the costs to policyholders and consumers.

Benefits

The benefit of having defense costs coverage is that it protects individuals and businesses from the financial burden of legal defense in case of lawsuits. This coverage ensures that policyholders can afford adequate legal representation to defend themselves against claims, preserving their rights and ensuring fair treatment in the legal process.

Conclusion

Understanding defense costs coverage is crucial for consumers and employees as it provides a layer of protection in the face of legal challenges. While it serves as a safeguard against the financial strain of legal defense, it is important to use this coverage responsibly and ethically to uphold fairness and accountability in the marketplace.

Related Terms

Directors And Officers InsuranceGeneral Liability Insurance