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🛡️ '''Litigation cost coverage''' is a provision within an [[Definition:Insurance policy | insurance policy]] — most commonly found in [[Definition:Liability insurance | liability]] and [[Definition:Professional indemnity insurance | professional indemnity]] lines — that pays for the legal expenses an insured incurs when defending against a covered [[Definition:Insurance claim | claim]], including attorney fees, court costs, expert witness expenses, and related litigation charges. Depending on the policy form, these costs may be included within the [[Definition:Policy limit | policy limit]] (eroding available indemnity) or provided in addition to it, a distinction that can dramatically affect the real-world value of the coverage.

⚙️ How litigation cost coverage operates hinges on whether the policy uses a "defense within limits" (also called [[Definition:Defense within limits | DWL]] or "burning limits") structure versus a "defense outside limits" approach. Under defense within limits, every dollar spent on legal defense reduces the aggregate available to pay a judgment or settlement, which can leave the [[Definition:Policyholder | policyholder]] underinsured if a case drags on. Defense outside limits keeps the defense budget separate, preserving the full indemnity amount for the underlying liability. [[Definition:Underwriter | Underwriters]] price these structures differently, and [[Definition:Insurance broker | brokers]] often negotiate aggressively on this point because the economic gap between the two can be substantial, particularly in complex [[Definition:Directors and officers insurance (D&O) | D&O]], [[Definition:Errors and omissions insurance (E&O) | E&O]], or [[Definition:Cyber insurance | cyber]] claims.

💰 The rising cost of litigation — driven by factors like [[Definition:Social inflation | social inflation]], increased [[Definition:Nuclear verdict | nuclear verdicts]], and expanding regulatory actions — has made litigation cost coverage a central focus of policy analysis for risk managers and [[Definition:Insurance buyer | insurance buyers]] alike. An inadequate or poorly structured defense-cost provision can leave an organization financially exposed even when it ultimately prevails in court. Carriers, in turn, manage this exposure through careful [[Definition:Claims management | claims management]], panel counsel arrangements, and policy sub-limits on certain categories of expense. For [[Definition:Insurtech | insurtech]] platforms building digital claims or policy-comparison tools, accurately modeling defense cost mechanics is essential to delivering meaningful coverage recommendations.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Defense within limits]]
* [[Definition:Liability insurance]]
* [[Definition:Duty to defend]]
* [[Definition:Social inflation]]
* [[Definition:Professional indemnity insurance]]
* [[Definition:Claims management]]
{{Div col end}}

Definition:Litigation cost coverage - Revision history

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