It seems that when an insurer issues a defense cost inclusive policy, its objective is to limit its potential liability, soup to nuts, to the limit set out on the declarations page. But that was not the outcome for the insurer in Mora v. Lancet Indemnity Risk Retention Group, No. 16-960 (D. Md. Apr. 17, 2018).

At issue was coverage for a $996,000 state court judgment in a medical malpractice action. The policy at issue -- defense costs inclusive -- contained a $1,000,000 limit. The insured – or someone, I can’t tell; it’s technical but not important here – sought $996,840.50 (the policy limit less the defense costs incurred of $3,159.50; not sure how only $3,000 for defense; perhaps an SIR first). Also sought from the insurer was post-judgment interest.

The court addressed various procedural issues. Beyond that the court addressed the insurer’s argument that it’s maximum liability was $1,000,000 as the policy is “defense costs inclusive.” Thus, as the insurer saw it, it had no obligation for post-judgment interest that exceeds the policy’s $1,000,000 limit.

The court did not break a sweat in rejecting the insurer’s argument: “Although Lancet’s policy includes defense costs within the amount of a ‘claim,’ the policy also explicitly provides for post-judgment interest as a payment supplemental to a claim, rather than as a defense cost subject to the claim limit. Compare ECF No. 22-1 at 17 (defining defense costs) with ECF No. 22-1 at 39 (defining supplemental payments to include ‘[a]ll interest on the full amount of any judgment that accrues after the entry of judgment and before we have paid, offered to pay, or deposited in court the part of the judgment that is within the applicable Limits of Liability (emphases added by court)). Therefore, post-judgment interest is not a defense cost subject to the claim limit.”

The moral of the story, for insurers that write “defense costs inclusive” policies, for purposes of limiting their exposure to the amount on the Dec. page, is simple.