Do legal defense costs count toward the liability limits in a PAP claim?

• A. Yes
• B. No
• C. Only if the claim goes to court
• D. Only if there is a judgment

Answer: (A)

In a Personal Auto Policy, the liability portion covers damages the insured is legally responsible for, up to the policy’s limits, and those limits apply to both the damages and the defense costs incurred to handle the claim. Defense costs aren’t extra coverage; they come out of the same pool of money as settlements and judgments. So if the limit is, say, $100,000 and legal defense costs amount to $20,000, only $80,000 remains to pay damages. If the total damages plus defense costs exceed the limit, the insured would be responsible for the excess. This is why legal defense costs count toward the liability limits.