CEOL stands for Claims Expenses Outside the Limits.  The purpose of CEOL is to provide a separate limit of liability claims expenses to help preserve the primary limit of liability.  The other Lawyers Professional Liability Insurance Policy 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 through claims expenses or an indemnity payment, the obligation of the malpractice insurance carrier is fulfilled.  This 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, the law firm is carrying a $100,000 limit of liability with CEOL.  A claim is made against the firm that is evaluated to cost $200,000 by the malpractice carrier’s claims department.  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.

Other Considerations:

Plaintiff attorneys also need to be aware of the type of liability policy that a firm has.  Many times this is the only substantial asset for the defendant.  The plaintiff lawyer who engages in "scorched earth" litigation over an extended period of time may actually leave their client without a viable source of recovery.  In this sense, burning limits insurance policies may in certain circumstances encourage plaintiffs and their counsel to resolve matters earlier than they might otherwise.

This is a school of thought might have some attorneys seek lower limits with CEIL because they believe this will produce lower settlements if sued.  This may or may not be true given specific facts and circumstances.   It could a very risky approach to save money for insurance coverage, only to spend 
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