PI wording · Defence costs

Defence costs in your PI policy — inclusive of limit or additional to it?

Reviewed by Matthew Bartlett, Director, Apex Insurance Brokers Limited (FCA FRN 724952) · Published 14 July 2026

Two policies at £2m limit are not the same product. If defence costs are inclusive of the limit, the £2m is a total pot for damages and legal fees combined — and a heavily-defended claim can exhaust the limit before any damages are paid. If defence costs are additional, the £2m is available in full for damages and defence is separately funded. The difference can be the difference between adequately covered and materially exposed.

The two structures

  1. Defence costs inclusive of limit. Legal fees, expert-witness fees, expert costs and other defence expenses are drawn from the policy limit alongside damages. Standard on many newer wordings post-Insurance Act 2015.
  2. Defence costs in addition to limit. Legal fees are paid separately by the insurer up to a defined additional limit (sometimes unlimited). More generous for the insured; more expensive premium.

Why the distinction matters

PI defence costs on a serious claim can run into hundreds of thousands of pounds even where the claim ultimately fails.

  1. A £2m limit with inclusive defence costs, defending a £500k claim: if defence costs reach £500k, only £1.5m is available for damages.
  2. Same limit with defence costs additional: £2m for damages, insurer separately funds defence.
  3. Multiple related claims aggregating under the same limit compound the erosion.
  4. A firm at aggregation-limit exhaustion faces bearing further costs personally.

The market norm in 2026

  1. SRA MTC solicitors' PII. Defence costs typically inclusive under the mandatory layer; excess-layer wording varies.
  2. Architects, accountants, surveyors, engineers. Market has moved substantially to defence-costs-inclusive over the last decade.
  3. Some premium wordings, layered programmes, high-limit placements. Defence-costs-additional still available; premium reflects the additional insurer exposure.
  4. Old policies. Firms with long-standing wordings may still hold defence-costs-additional cover; check on renewal.

Reading your wording

  1. Find the definition of ‘limit’ or ‘limit of indemnity’.
  2. Look for language: ‘including defence costs’, ‘inclusive of defence costs’, or ‘in addition to’.
  3. Check whether ‘costs’ are separately defined and how they interact with the limit.
  4. Confirm whether any sub-limits apply to specific cost categories (regulatory investigation, criminal defence, etc.).

Practical implications for cover sizing

  1. If defence costs are inclusive, size the limit above the plausible worst-case damages + defence costs combined.
  2. If defence costs are additional, size for damages alone (with a check on any sub-limits on the defence side).
  3. Aggregation position matters more with inclusive defence — a template error affecting multiple clients can exhaust quickly.
  4. Regulatory investigation cover often sits inside defence-cost provisions — check.

Negotiating the position

  1. Where possible, discuss with the insurer whether defence costs can be additional — sometimes available at modest premium loading.
  2. Where inclusive is the only option, size the aggregate limit to accommodate.
  3. For layered programmes, consider whether the primary layer is inclusive but excess layers are additional — a common structure.
  4. Check reinstatement provisions — if the limit reinstates, the inclusive-vs-additional distinction is less critical.

Frequently asked

Which is better, defence costs inclusive or additional?
Defence costs additional is materially better for the insured — the full limit is available for damages while the insurer separately funds defence. But it costs more in premium. Most professional firms now hold inclusive defence-cost cover as the market norm.
How do I know which my policy has?
Read the definition of 'limit' or 'limit of indemnity' in the policy wording. Language like 'including defence costs' or 'inclusive of costs' indicates inclusive. 'In addition to the limit' indicates additional.
Did the Insurance Act 2015 change how defence costs work?
The Insurance Act 2015 did not directly change the inclusive-vs-additional structure, but the market movement to inclusive accelerated in the years after. Insurers cite the Act's disclosure and remedies framework as making it easier to price defence exposure inside the limit.
Does the SRA MTC require inclusive or additional defence costs?
The SRA MTC mandatory layer has defence-costs-inclusive treatment as standard. Excess and top-up layers can be structured either way.
If my £2m limit is exhausted by defence costs, am I personally liable for damages?
Effectively yes. Once the limit is exhausted, the insurer's obligation to pay ends. Further damages fall to the firm and its partners or shareholders. This is why cover-sizing matters.
Can defence costs be additional only for some claim types?
Yes, some wordings apply defence-costs-additional only to specific categories (regulatory investigation, criminal defence) and inclusive for others (civil damages). Read the wording carefully.
How does aggregation interact with defence costs?
Multiple related claims aggregating under one policy limit erode the limit through combined defence costs faster than a single claim. Aggregation exposure with inclusive defence is a common cover-adequacy failure point.
Should I ask my broker to change my policy to defence-costs-additional?
Worth asking. Cost impact varies. For firms with high defence-cost risk (regulator-heavy, complex litigation-prone sectors), the additional premium may be worthwhile. For lower-defence-cost profiles, the inclusive structure with well-sized limit is often adequate.

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