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C. WHAT ARE DEFENSE COSTS?
The MCPL policy covers Loss as a result of a Claim, and Loss, as defined in the policy, includes Defense Costs. The
policy provides the following definition of Defense Costs:
“Defense Costs” means reasonable and necessary legal fees and expenses incurred with the approval of the
Company in connection with the investigation, adjustment, settlement, defense or appeal of a Claim made
against an Insured for a Wrongful Act, and shall include the cost of attachment or similar bonds. Payment of
Defense Costs by the Company shall reduce, and may exhaust, the Limit of Liability under this Policy.
“Defense Costs” shall not include salaries, wages, fees, overhead, overtime, or benefit expenses incurred by
or associated with the Insureds.
Legal Fees and Expenses. Defense Costs include legal fees and expenses that are incurred in connection with the
investigation, adjustment, settlement, defense or appeal of a Claim. They do not include fees or costs incurred
by the insured for other purposes, such as costs incurred in analyzing the potential for coverage under the policy
or the availability of other insurance. Internal costs, such as salaries, fees, overhead or overtime, also do not
constitute Defense Costs.
Reasonable and Necessary. Defense Costs compensable under the policy are limited to those fees and expenses
that are “reasonable and necessary.” The reasonableness of fees and expenses depends on the nature and venue
of the Claim. Rates must be commensurate with the location in which the litigation is pending and the complexity
or special knowledge required under the circumstances. The necessity of fees and costs likewise depends on
the case, but generally Underwriters will pay for only one firm to defend the Claim and will not pay for travel
expenses incurred if the firm is not located in the venue where the action is pending.
Approval of the Company. Under the policy, Defense Costs may be incurred only with the approval of Underwriters.
Underwriters will often give deference to an insured’s choice of counsel, subject to approval of the firm’s rates,
qualifications and geographic proximity to the case. Costs incurred before an insured gives notice of Claim are
not incurred with Underwriters’ approval and therefore cannot satisfy the applicable retention or be considered
for coverage under the policy.
Defense Within Limits. Defense Costs are part of, and not in addition to, the limit of liability under the policy. The
payment of any Defense Costs reduces, and may entirely exhaust, the limits of liability and Retention amount in
the MCPL policy.
PROFESSIONAL LIABILITY COVERAGE · 6