Policy mechanics
Legal defence costs under a Professional Indemnity policy
How PI insurance pays for legal defence, whether those costs erode your limit, and what happens with unsuccessful claims.
Key takeaways
- ✓PI insurance pays reasonable legal defence costs in responding to a claim, even where the claim is ultimately unsuccessful or withdrawn
- ✓On most policies, defence costs are paid within — not in addition to — your limit of indemnity, so check your wording carefully
- ✓Insurers usually control or must approve the appointment of defence attorneys and any settlement
- ✓Notifying a potential claim early protects your ability to have defence costs covered from the outset
What defence costs cover
Defence costs typically include attorney fees, expert witness costs, costs of responding to a regulatory complaint or Ombud referral, and the general cost of investigating and formally responding to an allegation against you.
These costs are payable regardless of how the claim resolves — even a claim your insurer successfully defends, or one the claimant withdraws, still generates defence costs that your policy responds to.
Costs inclusive vs costs in addition to the limit
Most South African PI policies are written on a "costs inclusive" basis: defence costs and any damages or settlement share the same limit of indemnity. A large legal defence bill on a costs-inclusive policy reduces the amount of your limit left available to pay a settlement.
A smaller number of policies — usually at higher premium — offer defence costs "in addition to" the limit, meaning legal fees are paid separately and don't erode the amount available for damages. This distinction materially affects whether a given limit is genuinely adequate, and it's worth confirming explicitly with your broker rather than assuming.
Who controls the defence
Your insurer typically has the right to appoint, or approve your choice of, defence attorneys, and to direct the strategy of the defence, subject to your policy's terms and your duty to cooperate.
Settling a claim, or admitting liability, without your insurer's consent can jeopardise cover for that settlement — always notify and involve your insurer before agreeing to any resolution with a claimant, however informal.
FAQ
Frequently asked questions
No, provided the claim or circumstance has been properly notified and accepted — your insurer typically appoints and pays defence costs directly, subject to your excess.