Frequently Asked Question:

What’s Included in Defense Costs vs. Indemnity Limits? 

Insurance Type
Related Industries
Related Coverages
Medical Malpractice

The Short Answer

In malpractice and other liability policies, indemnity is the amount paid to resolve a claim (settlements or judgments), while defense costs are the legal fees and expenses to investigate and defend you. How these interact with your limits — “inside” vs. “outside” the limit — has a major impact on how much protection you really have.

The Full Answer

Defense inside the limits means attorney fees, experts, and defense expenses erode your liability limit, leaving less available for settlement or judgment if a case is costly to defend. 

Defense outside the limits means legal expenses are paid in addition to your liability limit, providing stronger protection in high-severity or complex litigation. 

Understanding covered vs. uncovered costs is critical. Policies may exclude certain regulatory fines, punitive damages, or non-malpractice legal issues (criminal matters, some EMTALA or HIPAA penalties), so knowing exactly what is treated as defense vs. indemnity matters. 

How Liberty optimizes your coverage structure: Liberty reviews your policy forms to clarify how defense is handled, identifies gaps, and negotiates structures — such as defense outside limits, consent-to-settle language, and separate sublimits — that fit your risk profile and board’s risk tolerance.

Related Questions

Yes — restaurants process card payment data through point-of-sale systems daily, and a breach affecting customer payment information typically isn’t covered under general liability, which is why cyber liability is now considered standard for the industry.

A restaurant’s own commercial auto policy typically doesn’t cover an employee’s personal vehicle, so restaurants using employee-owned cars for delivery generally need hired and non-owned auto liability coverage.

Typically no — standard business interruption coverage is triggered by direct physical damage to the property, so a closure ordered for a health code violation alone usually isn’t a covered event unless it follows a covered loss.

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