Malpractice Insurance Claims Expenses Outside the Limits (CEOL)
CEOL stands for Claims Expenses Outside the Limits of Liability. CEOL is a separate liability sublimit for claims expenses (sometimes called defense costs). With CEOL claims expenses do not reduce the primary liability limit, unless the sublimit is exhausted.
If there is no CEOL sublimit then the policy will have the Claims Expenses Inside the Limits (CEIL). With CEIL, every dollar used for claims expenses reduces the liability limit by a dollar. Once the limit of liability is exhausted, either through claims expenses or an indemnity payment, the malpractice insurer’s obligation ends. A CEIL policy may be called a ‘Burning’ the limits policy as dollars spent for defense ‘burns’ through the liability limit available for paying the claim.
Insurers offer different options for CEOL:
- The CEOL sublimit equals the primary limit of liability, sometimes called “Full CEOL.”
- The CEOL sublimit is for a lessor set amount and may vary based on the limit of liability chosen or a “Limited CEOL.”
- The CEOL sublimit is equal to the primary limit of liability capped after the limit of liability exceeds a certain limit. This cap is often $1,000,000.
- The policy may have a CEOL endorsement or may be part of the policy language but contains no CEOL sublimit for claims expenses is “unlimited CEOL.”
How CEOL works:
CEOL pays for the claims expenses up to the CEOL sublimit. Once the CEOL sublimit is exhausted, the claims expenses continue reducing the primary liability limit with a combination of claims expenses or indemnity payments. After exhausting the liability limit(s) the insurer’s obligation ends.
Having CEOL is not a substitute for having a liability limit insufficient to pay the indemnity costs for potential claims. A low primary liability limit makes no sense if it is not enough to cover potential indemnity payments even with the purchase of CEOL. After exhausting the primary liability limit the malpractice insurer’s obligation ends even if the CEOL sublimit has not been fully used. As an example, a firm is carrying a $100,000 limit of liability per claim with CEOL, and a claim made against the firm that has an estimated settlement cost of $200,000. The malpractice insurer writes a check for $100,000 and ends its policy obligations. This leaves the firm having to fend for itself for remaining defense and indemnity costs.
A school of thought exists that lower liability limits produce lower settlements. This may or may not be true given specific facts and circumstances. This lower limit approach is a very risky approach to save a ‘little’ money on the insurance liability limits, only to spend many times that amount to cover the actual assessed damages for inadequate liability limits. The underinsured damage costs could very well come from the firm member’s personal assets.
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Lee Norcross, MBA, CPCU
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L Squared Insurance Agency, LLC ® DBA in California as L2 L Squared Insurance Agency, License # 0L93416
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Lee@L2Ins.com
616-726-7080
