![]() ![]() An attorney who determines that potential defense costs may impair the insurer’s ability to indemnify the insured for exposure should bring that issue to both the insurer and the insured’s attention as early as possible. These tools should be updated regularly, with copies sent to the insurer and the insured. It is good practice for an attorney handling a defense pursuant to a declining limits policy is for the attorney to create a liability analysis report and a litigation budget as soon as possible. ![]() Good Practice For An Attorney Handling A Defense In his or her initial letter to the insured regarding undertaking the defense assignment, the defense attorney should specifically state that he or she will not be rendering any coverage advice. In doing so, however, the defense attorney must be careful not to give coverage advice. In either situation, defense counsel must advise the insured of the benefits of a suggested litigation activity (for example, hiring an expensive expert) and its potential effect on both the defense of the case and the available indemnity limits. Depending on the policy and the use of the limits, an insurer’s duty to defend some claims may be satisfied by defending and accomplishing a good-faith settlement of other claims in a manner that provides a real benefit to the insured. Whether an insurer has a duty to continue to defend its insured after policy limits have been exhausted is a contractual matter spelled out in the policy. Although the idea is gaining popularity among automobile, homeowners’ and commercial general liability policies, competitive markets in some industries and state regulations are likely to curtail expansive use of eroding coverage.Ī similar situation arises when there are several claims, and the payment of one or more exhausts policy limits. Increasing numbers of professional liability policies and employment practices liability policies include eroding limits. In other words, every dollar spent on defense reduces by one dollar the amount available to settle or otherwise resolve the claim. In these policies, defense costs erode indemnity limits. One way an insurer may limit defense costs and its overall exposure is through the use of “eroding” or “burning limits” policies. Although policy limits generally constitute the boundaries of the insurer’s indemnity obligations, most liability policies do not limit the amount an insurer must pay in defense of claims. ![]()
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