In the context of Employment Practices Liability Insurance (EPLI), the term refers to a policy structure where the cost of legal defense for a covered claim does not erode, or get deducted from, the policy’s overall limit of liability. With this arrangement, the amount available to pay settlements or judgments remains intact, regardless of the defense expenses incurred. For example, if a policy has a $1 million limit and defense costs reach $200,000, the full $1 million remains available for settlement or judgment payments.
This type of coverage provides a significant advantage to policyholders. It helps preserve the policy’s limit for settlements or judgments, especially in cases with protracted and expensive litigation. Its presence can influence an organization’s risk management strategy, potentially allowing for more aggressive defense strategies without fear of rapidly depleting the available coverage. Historically, EPLI policies commonly included defense costs within the overall limit, meaning that lengthy or complex lawsuits could severely diminish the funds available for settlement. The introduction of this different type of arrangement addressed this concern, offering greater financial security.
