insurance

Defense Costs

The legal expenses an insurance company pays to defend a policyholder against covered claims or lawsuits. These costs include attorney fees, court costs, expert witness fees, and other legal expenses incurred in defending against liability claims, regardless of whether the case is won or lost.

Example

“When Tom was sued for $500,000 after a car accident, his auto insurance covered $75,000 in defense costs for attorneys and expert witnesses, even though the case was eventually settled for $200,000.”

Memory Tip

Remember 'Defense = Dollars for Defense' - your insurance pays the lawyers to defend you, separate from any settlement or judgment.

Why It Matters

Defense costs can be extremely expensive and often exceed the actual settlement amounts in lawsuits. Having insurance that covers these costs protects your personal assets from being drained by legal fees, even in cases where you're ultimately not liable.

Common Misconception

Many people think defense costs only apply if they lose a lawsuit, but insurance typically covers these expenses regardless of the outcome. Some also assume defense costs count against their policy limits, when many policies provide defense coverage in addition to liability limits.

In Practice

Maria faces a $300,000 slip-and-fall lawsuit at her rental property. Her landlord insurance has $1 million in liability coverage. The insurer spends $45,000 on defense costs including $35,000 in attorney fees, $8,000 for expert witnesses, and $2,000 in court costs. The case settles for $150,000. Maria's total claim is $195,000 ($45,000 defense + $150,000 settlement), but she pays nothing out-of-pocket as both amounts are covered under her policy.

Etymology

The term combines 'defense' from Latin 'defendere' meaning to ward off, with 'costs' from Latin 'constare' meaning to stand at a price, used in legal insurance contexts since the early 1900s.

Common Misspellings

defense costsdefence costsdefens costsdefense cost

Related Terms

Duty to Defend

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