First Dollar Defense is an insurance provision that waives the deductible for defense costs.
This article provides a comprehensive explanation of First Dollar Defense, exploring its relevance in various scenarios. Whether you’re seeking insurance knowledge or looking to protect yourself financially, this article will help you understand the benefits of this important coverage provision.
What is First Dollar Defense?
First Dollar Defense coverage is a feature found in certain liability policies, where deductibles for defense costs are waived regardless of any indemnity payments made for a claim. It is commonly associated with liability insurance policies, particularly in professional liability or errors and omissions insurance. Some insurance companies may also call this feature Loss Only Deductible or Indemnity Only Deductible.
How Does it Work?
Unlike traditional insurance policies that require upfront deductible payments, First Dollar Defense coverage eliminates this requirement. Once a claim is approved, policyholders enjoy full insurance coverage from the first legal bill, providing immediate financial support in times of need. It is important to note that this coverage applies to defense costs only.
Example:
Let’s consider a scenario where a consultant has Errors & Omissions coverage with a $5,000,000 limit of liability and a $10,000 deductible.
With First Dollar Defense:
Suppose a claim arises, and the defense costs incurred amount to $100,000. In this situation, the consultant would not be required to pay the deductible because no indemnity payment has been made on the claim yet. This is the essence of the “first dollar to defend” terminology commonly associated with this coverage.
When First Dollar Defense coverage is in effect, the insurance carrier is responsible for covering the initial defense costs without requiring the insured to pay the deductible. If the claim is settled without any indemnity payment, the consultant would not have any out-of-pocket expenses as the First Dollar Defense coverage would cover the defense costs.
However, if the consultant has First Dollar Defense coverage and the claim ultimately settles with a loss payment of $20,000 in damages, the consultant would be responsible for the $10,000 deductible, as more than just defense costs were incurred.
Without First Dollar Defense:
On the contrary, if the same claim were to arise, but the consultant did not have First Dollar Defense coverage, the consultant would be liable for the $10,000 deductible, even if the claim concludes with only defense expenses paid.
Why consider paying more for this feature?
First Dollar Defense coverage offers several benefits, including:
- Instant Financial Protection: Swift coverage during unexpected legal claims or liabilities safeguards policyholders from the financial burden of out-of-pocket deductible payments.
- Peace of Mind: With First Dollar Defense, policyholders can have peace of mind knowing that their insurance coverage starts from the beginning of a claim, enabling them to focus on their professional responsibilities without financial concerns.
- Cost Efficiency: While First Dollar Defense policies may have slightly higher premiums compared to traditional policies, they prove cost-effective in the long run by eliminating upfront deductible payments. This is especially advantageous for policyholders facing multiple claims within a policy period.
Applying First Dollar Defense in Various Scenarios
First Dollar Defense is often a feature in professional liability insurance. Professionals such as doctors, lawyers, or architects who are vulnerable to potential lawsuits should be asking for this coverage feature. By opting for this coverage, professionals can minimize their financial risks and ensure immediate protection in the event of claims made against them.
Another scenario where Indemnity Only Deductible comes into play is Contractors’ Pollution Liability (CPL) coverage. This feature allows contractors to work confidently, knowing they have immediate support for legal challenges and defense-related expenses.
Determining First Dollar Defense Coverage
Understanding whether your policy includes First Dollar Defense coverage can be complex. Start by reviewing the policy wording under relevant sections, such as “Limits of Liability, Deductible, and Claims,”. Alternatively, contact your insurance broker directly for help clarifying your coverage.
During insurance policy renewals, your insurance broker can assist in evaluating whether or not opting for First Dollar Defense would be beneficial. They may be able to add the coverage to your existing policy for an additional cost. Alternatively, they may obtain options from other insurers.
To set yourself up for success and make informed decisions, do research and ensure you are well-informed about the available options. Then, actively engage your insurance broker by asking specific coverage questions.
Key Takeaways
- First Dollar Defense may eliminate the burden of deductible payments for policyholders in some scenarios.
- Additional coverage features come with a price.
- Ask for this coverage feature if you value immediate financial protection, peace of mind, and potential cost savings.
- Understand how FDD works and its advantages so that you can make informed decisions when selecting insurance policies.
