First Dollar Defense and Outside Limits: What They Are – and WHY You Need Them

Just as medical doctors don’t always take their own health care advice in their personal lives, as insurance providers, WE don’t always follow our commonly-shared advice about reading a policy’s “fine print” when it comes to ourE&O policies.


E&O is normally required to maintain carrier appointments, and many agencies focus primarily on price in their decision-making. As long as they have the minimum liability limits needed to satisfy their carrier requirements, ancillary coverages are often overlooked or rejected.


You’ve probably heard these terms before, but you might not fully understand them:

  • First Dollar Defense
  • Defense Outside Limits
  • Defense for Administrative
  • and/or Disciplinary proceedings.


What exactly are these terms? You’ve seen them listed as options on E&O proposals in the past. But, do you really need them, and are they worth the cost?

Yes, you do need them – and here’s a real-world example to illustrate WHY.

One Monday starts out innocently enough until you receive a phone call from a panicked Insured. Their vehicle was totaled in a single vehicle accident over the weekend, and the driver and a passenger are hospitalized in critical condition.


After reassuring your client, you provide instructions for reporting the claim directly to the automobile carrier. Your Insured thanks you, and just before the call ends, she asks you to pray for her son, who was driving the car.


After you hang up, your stomach drops. You think, “I don’t remember listing her son as an insured driver.” You check the file and sure enough, her son was specifically excluded on the application due to his poor driving record.


Your Insured completed the application in person, and you recall specifically pointing out the exclusion and explaining the ramifications of excluding drivers.

You also have the proper rejection forms signed and on file. The Insured received their policy directly from the carrier, and the excluded drivers are clearly listed on the declarations page.


You soon learn from the claims adjuster that the carrier is denying the claim. You can definitely sympathize with your client, but you know you have done your diligence as an agent.

Over the next few months, you try to connect with your client. Her automobile policy expired, and you assume she never replaced the vehicle or obtained new coverage elsewhere.


Eventually, you suppose the matter is behind you – until you receive a certified letter from the Department of Insurance.


A complaint of negligence was filed against you, and you’re required to respond within 14 days. Two days later, you’re served with a subpoena.


Your Insured was sued by the injured passenger, and your Insured, in turn, sued your agency and the carrier.

Over the ensuing 10 months, you miss many days from the office while giving depositions, producing files, attending trial, etc.


Your defense team successfully pleads your case after incurring over $100,000 in costs, and the suit against your agency and the carrier is finally dismissed.


You breathe a sigh of relief now that the matter is officially resolved, until you remember the $5,000 deductible for which you are responsible!


This is why it’s critical that you know how your policy and your defense team will cover you should such an unfortunate (and all-too-common) situation occur.


Rockwood’s enhanced policy form and defense team are in your corner. When suits are dismissed and no damages are paid to the Claimant, your deductible is waived.


First Dollar Defense is now built into Rockwood’s policy form. A separate $500,000 limit of liability for defense costs (outside the limits) is included to help battle similar frivolous lawsuits.


For time spent away from the office attending hearings, depositions, arbitrations, mediations, etc., Rockwood will reimburse up to $250 per day for these expenses. The policy also provides $25,000 for defense of administrative/disciplinary hearings to help respond to DOI investigations and/or complaints.


Bottom line…we encourage you to take the advice we as insurance providers give to our clients time and time again: be sure to understand all the “fine print” in your E&O policy – including your First Dollar Defense and Outside Limits.


If you’d like additional guidance about your options, the Rockwood team is always happy to help.


Brian Pasternack is the lead underwriter for Rockwood’s Property & Casualty Agent’s E&O unit.  Mr. Pasternack first joined the agency in 2006.  He began his insurance career as a sales representative at ICT Group.  He has also served as an underwriter for AIG’s personal lines operation.  Mr. Pasternack maintains a P&C Agent’s license and earned a CISR designation in 1997.