Eroding Limits: Benefit, Burden, or Both?
In recent discussions with clients regarding the development of professional liability coverage, I was asked whether we would be “better off” with eroding limits coverage. That question sparked an interesting discussion about the value of eroding limits in cases where defense costs represent the majority of exposure and the impact that eroding limits can have on a case’s ability to ultimately settle. We also discussed the impact of eroding limits on cost. At the same time, we discussed the fact that eroding limits can increase extra contractual concerns due to the need to continually advise the insured of its uncovered risk and the fact that the insured could be left with substantial indemnity exposure. Moreover, we discussed the fact that the particular insureds we were dealing with had other, non-monetary factors which impacted their decisions with regard to the desire to defend.
What have your experiences been with eroding limits coverage? What other factors do you think should be considered when deciding which type of coverage to provide/purchase?