What are Defense Costs?

Defense Costs are the legal expenses incurred to defend your restaurant against a lawsuit or claim, regardless of whether the claim has merit or whether you ultimately win or lose the case. These costs include attorney fees, court filing fees, expert witness fees, investigation costs, deposition expenses, document production costs, and trial expenses. In liability insurance policies, defense costs are typically covered in addition to the policy limits, meaning they don’t reduce the amount available to pay settlements or judgments. For example, if you have a $1 million general liability policy and a lawsuit costs $200,000 to defend and settles for $500,000, your insurer would pay the full $700,000 even though the settlement alone was only $500,000. However, some policies include defense costs within the policy limits, which means every dollar spent on legal defense reduces the amount available for settlements.

What you need to know

Defense costs represent all the legal expenses required to defend your restaurant against lawsuits, and understanding how your policy handles these costs is critical to knowing your actual coverage.

What defense costs include:

• Attorney fees – The largest component, often $200-$500 per hour or more
• Court filing fees – Administrative costs to file motions and documents
• Expert witness fees – Specialists who testify on technical matters
• Investigation costs – Gathering evidence and conducting research
• Deposition expenses – Costs to take and transcribe witness statements
• Document production – Reviewing and producing requested materials
• Trial expenses – Jury fees, court reporters, exhibit preparation

Two policy structures for defense costs:

• In addition to limits – Defense costs are paid separately from the policy limit, preserving the full limit for settlements and judgments (better coverage)
• Within limits – Defense costs reduce the available policy limit, meaning less money remains for settlements and judgments (weaker coverage)

The duty to defend:

When you have liability insurance, your insurer has a “duty to defend” you against covered claims. This means the insurance company pays all reasonable defense costs without requiring you to reimburse them, even if you ultimately win the case and owe nothing.

Why it matters for Restaurant Owners

Many restaurant owners don’t realize that defending against even a frivolous lawsuit can cost tens or hundreds of thousands of dollars in legal fees, and these costs begin accumulating from the moment you’re served with a lawsuit. Even if you did nothing wrong and ultimately win the case, you still have to pay your attorneys to defend you through months or years of legal proceedings.

The true cost of legal defense:

A slip-and-fall lawsuit that goes to trial can easily cost $50,000 to $150,000 in defense costs alone, and an employment lawsuit can cost even more. Complex cases involving multiple parties, extensive discovery, or expert testimony can reach $200,000 or more in defense costs before ever reaching a verdict.

Why the policy structure matters:

Understanding whether your policy covers defense costs in addition to policy limits or within policy limits is crucial, as “within limits” policies provide significantly less protection. If you have a $1 million policy with defense costs within limits and spend $200,000 defending a case, only $800,000 remains available for a settlement or judgment.

Choosing the right coverage:

Always choose policies with defense costs “in addition to limits” when possible, as this ensures that your full policy limit remains available to pay settlements or judgments rather than being depleted by legal fees. This is one of the most valuable aspects of liability insurance—your insurer covers the enormous cost of legal defense regardless of the case outcome.