Defense Within Limits (DWL) vs. Defense Outside Limits (DOL)
Every attorney purchasing legal malpractice insurance should be aware of this critical policy feature and whether the attorney fees and costs incurred to defend a claim are “within the limit of liability” or “outside of or in addition to limit of liability.” Why is this important?
Under a DWL policy or “defense within limits” policy, the defense costs incurred to defend a claim are applied against and reduce the limit of liability available to pay damages or loss for a covered claim under the policy. Thus, a DWL policy is commonly referred to as an “eroding limit” policy because the available insurance protection under the limit of liability erodes or is reduced as the claim is defended and defense costs are incurred. Defending an LPLI claim oftentimes is difficult, time-consuming, and expensive. As the defense costs continue to mount, the limit of liability or insurance protection available to pay damages declines and the insured attorney may find that the policy does not have enough remaining protection to pay the full extent of the damages or loss. In that unfortunate scenario, the attorney is faced with “uninsured damages or loss” in excess of the remaining limit of liability available to pay damages, thereby creating personal liability exposure for the attorney to satisfy the excess damages or loss.
Under a DOL policy or “defense outside limits” policy, the defense costs incurred to defend a claim are outside of the limit of liability and are not applied against and do not reduce the limit of liability available to pay damages. As you can see, a DOL policy is clearly superior protection for a lawyer when compared to a DWL policy and the legal malpractice insurance cost for a DOL policy is higher.
ALPS’s legal malpractice policies generally provide a substantial Claim Expense Allowance that is available up to $1 Million depending upon the limit of liability under the LPLI policy. It is extraordinarily rare that a Claim Expense Allowance would be exhausted, but under our LPLI policies the limit of liability would begin to erode only after the Claim Expense Allowance is exhausted.
You should also be aware that an LPLI policy with a Claim Expense Allowance is more expensive than a pure DWL policy without a Claim Expense Allowance. If you don’t believe you need a Claim Expense Allowance feature within your policy, then ALPS offers unique options for a true DWL policy that will reduce your legal malpractice insurance cost.