The excess applicable to your policy can work in two different ways. It can be “applicable to defence costs” or it can be “not applicable to defence costs”. This might not mean much to the laymen however misunderstanding how the excess applies to “defence costs” can be a costly mistake. If an allegation of negligence is made against your firm, whether unfounded or not, your insurers may need to instruct solicitors to defend your position.
The legal fees incurred in defending your position are known as defence costs. If your excess is applicable to defence costs, and your excess is say £2,500, you would have to pay the first £2,500 of the incurred defence costs. If the excess is “not applicable to defence costs”, you will only be oblige to contribute towards the actual claim awarded by the court or as is more common, the amount agreed between your insurer and the claimant as claims do not always reach the court.
