Defense Within Limits Clauses

Nebraska Department of Insurance Guidance Document IGD - - C3 Title: Defense Within Limits Clauses Issue Date: October 20, 2022 Previously: Issued as CB-102, November 19, 2001 Notice: This guidance document is advisory in nature but is binding on an agency until amended by such agency. A guidance document does not include internal procedural documents that only affect the internal operations of the agency and does not impose additional requirements or penalties on regulated parties or include confidential information or rules and regulations made in accordance with the Administrative Procedure Act. If you believe that this guidance document imposes additional requirements or penalties on regulated parties, you may request a review of the document. In general, a “defense with limits” provision includes an insurer’s cost to defend its insured against liability when determining the maximum amount payable by stated policy limits. The Nebraska Property and Casualty Rate and Form Act, specifically NEB.REV.STAT. §44- 7502 and NEB.REV.STAT. §44-7513 (9)(C), requires the department to ensure insurance contracts “reasonably provide the general coverage for policies of that type.” The Nebraska Department of Insurance “NDOI” established the following approval guidelines for “defense within limits” provisions within commercial general liability policies: • The policy provides minimum liability coverage of three million dollars per occurrence • The form must include provisions that require the insurer to extend the coverage limits of the form to the limit required by law for insurance policies issued to comply with statutorily required liability insurance • The insured must sign a disclosure form as part of the application process. The disclosure must advise that, unlike most liability insurance policies in which payment of defense costs does not reduce the policy limits, this policy contains a “defense within the limits” provision. The provision includes the insurer’s costs for providing legal defense against a claim along with any claim settlement amount within the stated policy limits • The disclosure must also include an explanation relating to the insurer’s duty to defend. It must advise that once the policy limit is reached, the insurer’s responsibility to pay any further amounts for defense costs or for any damages that may be awarded ends, except that the insurer will pay damages for statutorily required insurance to the limit required by law Despite the three-million-dollar minimum limits, the NDOI urges insurers and insurance producers to exercise diligence in placing policies with such provisions so that applicants’ coverage needs and objectives are well met. NDOI’s Property and Casualty Administrator can answer questions related to this guidance document at 402-471-2201.