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. In liability policies, defense costs are typically covered in addition to the policy limits, meaning they don't reduce the amount available to pay a settlement — though some weaker policies count them within the limit instead.
What You Need to Know
What defense costs include:
- Attorney fees — usually the largest component
- Court filing fees and expert witness fees
- Investigation and deposition expenses
- Document production and trial expenses
Two policy structures matter enormously: "in addition to limits" pays defense costs separately, preserving the full limit for settlements, while "within limits" lets defense costs eat into the same pool of money available for a settlement or judgment — a much weaker form of coverage.
Your insurer's "duty to defend" means they pay all reasonable defense costs without requiring reimbursement, 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 start accumulating the moment you're served.
Why the policy structure matters: 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. Complex cases involving multiple parties or extensive discovery can consume defense costs well into six figures before ever reaching a verdict.
Always choose policies with defense costs "in addition to limits" when possible, since your full policy limit then remains available for the settlement itself rather than being depleted by legal fees first.
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