CEOL stands for Claims Expenses Outside the Limits. The purpose of CEOL is to provide additional coverage for claims expenses to help preserve the primary limit of liability. The other option is 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 by payment of claims expenses or an indemnity payment, the obligation of the malpractice insurance carrier is fulfilled. CEIL is also referred to as “Burning” of your liability limit.
Different insurance carriers offer different options for CEOL:
1. The CEOL limit equals the primary limit of liability, sometimes called “Full” CEOL.
2. The CEOL limits is for a lessor set amount and may vary based on the limit of liability insurance chosen. This is sometimes called “Limited” CEOL.
3. The CEOL limit is equal to the primary limit of liability up to a certain amount and is capped after the limit of liability exceeds a certain limit. This is often $1,000,000.
4. The CEOL limit has no cap for claims expenses or unlimited CEOL.
How it works:
CEOL pays for the claims expenses up to the limit set for CEOL. Once the CEOL limit is exhausted, the primary limit of liability continues to be reduced until the primary limit may be exhausted either through a combination of claims expenses or indemnity payments.
Having CEOL is not a substitute for having a liability limit sufficient to pay the indemnity costs of what a potential claim could cost. A low primary liability limit makes no sense, if it is not enough to cover potential indemnity payments even with the purchase of CEOL. Remember once the primary liability limit is exhausted the lawyers professional liability insurance carrier’s obligation is done. For example, even with CEOL, if the firm is carrying a $100,000 limit of liability and a claim is made against the firm that is evaluated to cost $200,000. The malpractice carrier is likely going to cut its losses and try to write a check for $100,000. This would leave the firm to have to fend for itself for remaining defense and indemnity costs.
There is a school of thought with some attorneys that lower limits, produce lower settlements. This may or may not be true given specific facts and circumstances. It can be a very risky approach to save money of the insurance coverage limits, only to spend many times that amount to cover the actual assessed damages for inadequate liability limits.