Personal Auto PolicyQuestion 384 of 531
A policy shows a $50,000 property damage limit. A $38,000 judgment is entered against the insured and the insurer spent $14,000 defending the suit. The insurer pays out:
a.$38,000, since defense comes out of the limit
b.$24,000, the judgment less what defense cost
c.$50,000, the property damage limit for the loss
d.$52,000, the judgment plus the defense costs paid
Explanation
Defense costs under Part A are paid in addition to the limit of liability rather than out of it. The insurer pays the $38,000 judgment and separately absorbs $14,000 of defense, so $52,000 leaves the insurer and the limit itself is untouched by legal fees. Treating the $14,000 as part of the $50,000 limit is the usual error.
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