If you are a solo attorney or have a small firm, you understand that managing your costs is very important. Malpractice insurance is one of the important costs that you need to budget for every year.
It can be time consuming and maybe a little bit overwhelming to understand what the different coverage options are.
Or perhaps you didn’t even realize there are different coverage options to consider when obtaining your professional liability policy.
With malpractice claims, the legal costs are a very real and expensive piece of the pie. The question is, how do you want your insurance policy to respond to them?
This article is going to provide you a detailed look at the differences between Claim Expenses Inside the Limit of Liability (CEIL) and Claim Expenses Outside the Limit of Liability (CEOL) coverage, so you can make an informed decision on how your insurance will operate.
What is CEIL?
With Claim Expenses Inside the Limit of Liability, aka CEIL, the amount paid by the insurer to defend you, the insured, against a claim or suit reduces the policy's applicable limit of insurance. In other words, any defense costs you incur are deducted from the available limit of liability.
Defense costs include attorney’s fees, court costs, investigation and filing legal papers.
Ultimately, CEIL reduces the amount of overage available to pay the actual damages from a claim, whether that is by settlement or by a court ruling.
Example of CEIL
Let’s assume you are the ABC Law Firm. You have malpractice insurance with a limit of liability of $1,000,000 and you chose CEIL coverage.
You have a malpractice claim from a missed filing date. Your client files suit against you for malpractice. Your insurance company is placed on notice and begins investigating the claim.
Through the discovery process, it is determined the case value is $1,000,000. In addition, the cost of the discovery and defense of the claim costs a total of $100,000. After the defense costs were paid, the available policy limit is $900,000. In this situation, your firm would have out of pocket costs of $100,000.
Now, that scenario can and has happened.
But, a more likely scenario is that you have a $1,000,000 policy and you have chosen CEIL coverage. This time it is determined that the claim is worth $250,000. Defense costs are still $100,000 and the available policy limit is still $900,000.
In this situation, your firm would not have any out of pocket expenses as there is still plenty of coverage available to pay the damages after the defense costs have been deducted from the limit.
Advantages of Choosing Claims Expenses Inside the Limit of Liability
The main advantage with CEIL coverage is the cost. Typically choosing CEIL instead of CEOL on a malpractice policy will save you about 10% on your premium cost. This savings can vary, but you will almost always have a lower premium when choosing CEIL.
In certain situations, a law firm may be contractually required to carry a certain limit of liability. For instance, a firm may have an important client that requires the firm to have a specific limit of liability.
Another example is when a law firm wants to be included in their local or state bar association’s lawyer directory. Typically, to be included on that list, the firm is required to carry coverage at a specific limit.
However, in both of these examples, the law firm’s exposure could be significantly less than the limit requirement. In this case, the firm should feel comfortable choosing the CEIL coverage option because it is unlikely they will hit their aggregate limit.
Disadvantages of Choosing Claims Expenses Inside the Limit of Liability
The disadvantages with CEIL depend on your firm’s risk profile. If, from time to time, your firm handles higher risk cases or cases of a high value then you might want to reconsider your coverage choice. Your firm is now exposed to the potential risk of being underinsured for a large claim and could be required to pay out of pocket for some of the damages.
What is CEOL?
CEOL is an acronym for Claim Expenses Outside the Limit of Liability, also known as Claim Expenses in Addition to the Limit of Liability. The purpose of CEOL is to provide additional coverage for claims expenses to help preserve the limit of liability.
If you choose this coverage option, your policy has a separate limit of liability set aside for all defense costs. This leaves the limit of liability on the policy preserved for payment of damages from a claim.
When shopping for malpractice, not all CEOL is equal. Some carriers say they are offering CEOL coverage, but if you look closer, it is limited. It may be limited by a specific dollar amount or it may be a percentage of the limit of liability.
Here at Protexure, the CEOL coverage option is equal to the limit of liability you have chosen. For example, if you choose a $1,000,000 per claim limit with a $2,000,000 aggregate limit, the Expense limit is also $1,000,000 per claim and $2,000,000 aggregate. That is a lot of extra coverage available for defense costs for a relatively low additional cost.
Example of CEOL
We’re going to continue with our previous example of ABC Law Firm. Let’s use the same scenario we used in the earlier example except you now carry CEOL coverage. You have $1,000,000 per claim limits and you have full CEOL. With full CEOL you have an additional $1,000,000 for all costs related to the defense of the claim.
Once again, we have a case with a value of $1,000,000. The defense costs are $100,000. Now that you have CEOL coverage on the policy, your policy will pay for the defense costs of $100,000 and will pay the claim value of $1,000,000. In this scenario, your firm will not owe any money out of pocket.
To dig into the coverages just a little bit deeper, here is a completely different scenario.
Let’s assume now that the limits are now $100,000 per claim with CEOL, so you have another $100,000 for expenses.
This time you and your defense team have decided this is a defendable case. Defense costs total $150,000. You win, but the cost was over the $100,000 policy limit. Who pays the remaining $50,000 in defense costs? The good news is, the policy covers it.
Once the limit for defense expenses is completely eroded, the policy will act as if you have CEIL and the initial limit of liability will pay for those defense expenses.
Pros/advantages of Choosing Claim Expenses Outside the Limit of Liability
The main advantage to this coverage is peace of mind. Many firms are ok with paying about 10% more in premium to feel comfortable that if they get an occasional larger case, they have enough coverage if anything goes wrong.
Disadvantages of Choosing Claim Expenses Outside the Limit of Liability
The disadvantage to carrying CEOL coverage is that there is an additional premium. It is also important to understand that having CEOL is not a substitute for having higher limits of liability. The limit you have chosen for damages is still the same and the carrier is not going to pay above that limit for a settlement or court ruling. For this reason, it is important that you are selecting the correct limit of liability for your firm.
The Bottom Line between CEIL and CEOL Malpractice Insurance Coverage
Take time to do your malpractice insurance homework. Talk to your insurance professional and ask questions. When you are getting competitive quotes, make sure you understand what coverages are being offered. Are you actually getting an apples to apples quote with the same coverages?
As discussed, it is essential to evaluate your firm’s risk. Ask yourself:
- What are your potential exposures?
- How much coverage are you comfortable with?
- How much are you willing to pay for additional coverage?
Bottom line, there isn’t a right or wrong decision when choosing between CEIL or CEOL. If you have done your homework and discussed the options with your carrier, you can feel confident you’re making the right decision for your law firm.