What Are Supplementary Payments, and Do They Count Against Your Limit?

Open the liability section of most auto policies and, after the coverage grant and the limit, there is a short list headed something like supplementary payments or "additional payments". It rarely gets read. It decides who pays for the machinery of a claim against you: the lawyers, the paperwork and some of your own costs.

What the section commonly includes

The items differ by insurance company, but the section commonly addresses:

• Defense costs. Attorneys' fees and the expense of investigating and defending a covered claim or lawsuit.
• Bond premiums. The cost of certain bonds, such as a bail bond required because of an accident, or an appeal bond, often subject to a cap.
• Interest. Interest that accrues on a judgment until the insurer pays its share.
• Your expenses. Reasonable expenses you incur at the insurer's request, which may include lost earnings for attending hearings or trial, often with a daily cap.

Read the list in your own policy; it is the only one that applies to you.

On top of the limit, or out of it?

This is the question that matters most. If defense costs are paid in addition to your limit, a long lawsuit does not eat into the money available to settle. If they are paid out of the limit, every hour of defense shrinks what is left for damages. Personal auto policies commonly pay supplementary payments in addition to the limit; confirm the wording before you assume it.

When two insurers are involved

California has its own rule for one situation. Under Insurance Code section 11580.9, when a primary personal policy and one or more excess personal policies apply to the same vehicle, each insurer pays a share of the defense costs in proportion to the damages it paid. Defense costs there include reasonable attorneys' fees, investigation expenses, expert witness fees and allowable court costs.

A worked example, limits only

You carry bodily injury liability of $100,000 per person. You are sued after a crash, and the case runs for more than a year before it settles for your full per-person limit.

• Policy A pays defense in addition to the limit: the injured person can receive the full $100,000, and the defense bill is the insurer's separately.
• Policy B pays defense within the limit: the defense bill comes out of the same $100,000, and less is left to settle, which can leave you facing the balance.

Two policies with identical limits on the declarations page can behave very differently in a contested claim.

When the duty to defend stops

Policies commonly say the insurer's duty to defend ends once it has paid its limit in settlement or judgment. That makes the limit itself the real ceiling on how long you are defended. It is one more reason the bodily injury limit deserves more thought than any other line on the page.

When you compare policies, ask each insurer one question: are defense costs paid in addition to the limit? You can ask it alongside a quote request.