The specifics of insurance can be complicated and confusing. When shopping for professional liability insurance, you want to leave the experience confident that your firm is covered adequately.
Claims Expenses Inside the Limit (CEIL) and Claims Expenses Outside the Limit (CEOL) coverage is an option that is almost always considered when shopping for lawyers professional liability insurance. At Protexure, we are frequently asked which is the best option for solo attorneys or small law firms, CEIL or CEOL. There are several factors we help attorneys examine before helping them choose the best option for their law firm.
But, before choosing between CEOL and CEIL, you must first fully understand what the options are. In this article we explain what CEIL is, how it is different from CEOL, and who should have CEIL coverage.
What is CEIL?
CEIL stands for claims expenses inside the limit of liability (versus CEOL which stands for claims expenses outside the limit of liability). CEIL is the standard coverage offered on most policies, with the small exception of certain jurisdictions that require CEOL coverage.
With CEIL, if a claim occurs, the defense expenses for a claim will be deducted from, or erode, the limit of liability, leaving a lesser amount available for the settlement of the claim. Defense expenses consist of investigation costs, court fees, attorney fees, and costs to file the necessary paperwork, but not the cost of settlement.
For example, let's take a look at a firm currently carrying limits of $1,000,000 per claim and $1,000,000 aggregate, and let's say a claim arises. If the claim results in a total of $150,000 in defense expenses, then $850,000 will remain available until the end of the current policy period to cover any settlement costs for the mentioned claim or any additional claims that may arise.
On the other hand, let’s take a look at the same mentioned firm carrying $1,000,000 per claim and $1,000,000 aggregate coverage, but with CEOL coverage.
With CEOL coverage, an additional “bucket” of $1,000,000 in defense coverage is now available. If the same claim occurs with defense costs of $150,000, the firm will still have a full $1,000,000 in coverage available for settlement costs. In other words, the defense expenses will not erode the limit of liability or cause the firm to need to dip into their limit of liability “bucket.”
How does CEIL coverage affect my premium?
Since CEIL has less coverage than CEOL, choosing CEIL will result in a lower premium cost. When shopping for professional liability coverage, most firms have mentioned that price is one of the biggest factors they consider when deciding on a carrier or specific coverage.
Of course, anyone wants to save money, especially on expenses like insurance, but you also want to make sure your firm is adequately covered. CEIL is the standard coverage option and paying the extra premium for CEOL coverage may not always be necessary.
Firms should look at the limits of liability they are carrying, or looking to carry, and give some thought as to if it is realistic that a claim’s defense expenses would likely result in a substantial amount.
Historically, it is rare that a firm has a claim where the defense expenses erode the limit of liability so much that there is not enough coverage left to settle the claim. That is when a firm carries adequate limits of liability.
CEIL vs CEOL
Let’s break down the differences between CEIL and CEOL with another example.
Imagine your firm is carrying $500,000 limits of liability this policy period, with CEIL. Mid-policy, a claim arises and is reported to your insurance carrier. Through the beginning stages, $45,000 is incurred in defense costs. This leaves $455,000 in coverage that can be used to settle this claim and/or towards any other possible claims during this policy period.
When the claim reaches its final stages, an additional $90,000 is needed to settle the claim. This claim closed for a total of $135,000, leaving your firm with $365,000 in remaining coverage for that policy period. If this were to be the only claim arising during this policy period, your firm would have adequate coverage.
On the other hand, imagine your firm carrying $500,000 limits of liability for this policy period but with CEOL coverage. Mid-policy, the same claim arises resulting in a total of $45,000 in defense costs. With the CEOL, your firm now has the additional bucket of $500,000 to use towards defense costs. This leaves your firm with a full $500,000 for settlement of the claim or towards any other claim during this policy period AND $455,000 to cover any additional defense costs that may arise during this policy period.
When the claim reaches its final stages, an additional $90,000 is needed to settle the claim. This claim closed for a total of $135,000, leaving your firm with $365,000 in remaining coverage to cover any additional claims that may arise this policy period AND $455,000 remaining for any additional defense costs that may arise this policy period.
As you can see in this scenario, the additional premium cost for CEOL coverage would not have been necessary. Carrying the proper limits of liability will normally cover the cost of your claims adequately. If a firm is questioning if its coverage covers its practice adequately, one should consider raising its limits of liability before purchasing CEOL.
Should you choose CEIL?
As a rule of thumb, CEIL coverage is adequate for firms that carry the appropriate limits of liability.
When a firm carries the appropriate amount of coverage, there is no need to pay the additional premium for CEOL coverage. This is because defense expenses would never erode the limits of liability so much that not enough would be left to cover a claim for the remainder of the firm’s policy period.
With that being said, the cost of CEOL coverage might be worth it to your firm simply for the peace of mind of having coverage above and beyond.
When shopping for professional liability insurance, take the time to evaluate your practice and insurance needs. It is important to ensure that you are covered adequately, even if that means paying an additional premium to do so.
If you are unsure as to the limits of liability your firm should carry or if you should or are required to carry CEOL coverage, feel free to research and communicate with the account executive you are working with. Together you can work to find coverage that is right for you!