A liability insurer settles a suit for the full $1,000,000 each-occurrence limit and has already spent $180,000 defending it. On a standard general liability policy the insurer's total outlay is:
Explanation
Defence costs on a standard general liability policy are a supplementary payment made in addition to the limit of insurance, so the insurer pays the $1,000,000 settlement and the $180,000 of defence expense, a total of $1,180,000. The answers that subtract defence from the limit describe a defence-within-limits or eroding-limits form, common on professional liability but not here. The duty to defend ends once the limit has been exhausted by a judgment or settlement.
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