Does your deductible pay for your lawyer?

Most business owners read a liability policy for one number: the limit. Fewer read far enough to find out how defense costs are handled, and that's usually the more expensive surprise.

There are two structures in common use. In the first, defense costs, attorney's fees, expert witnesses, court costs, are paid in addition to your liability limit. The insurer defends the claim and pays a settlement or judgment separately, up to the full limit. In the second, defense costs are paid out of the same limit you'd use to settle the claim. Every dollar spent defending the suit is a dollar no longer available to pay it.

The difference rarely matters on a claim that settles quickly and cheaply. It matters enormously on the claim that doesn't, the one that goes through depositions, expert reports, and a trial date, because those cases can run defense costs into six figures before a settlement number is even on the table. A policy with a $1 million limit and defense-inside-limits language can effectively become a much smaller policy the moment a lawsuit gets contested.

This is not a hypothetical carriers advertise clearly. It's typically a single clause, and the language used to describe it, "defense costs in addition to," versus "inclusive of," or "within," the limit of liability, is easy to read past. It's worth finding in your own policy, not taking on faith from whoever sold it to you.

There's no universally right answer here. Defense-outside-limits coverage usually costs more, and for some risk profiles that additional cost isn't necessary. What matters is knowing which one you have, deliberately, rather than finding out the hard way partway through a lawsuit.