The lawyer defending you is being paid from somewhere. Find out where.
Errors and omissions cover pays two things: what you owe a client, and what it costs to argue about it. On most professional policies the cost of the defence comes out of the same limit as the settlement, so a long fight leaves less money to settle with. That is one line in the policy, and it decides how far your limit goes.
Build the firm file Read the short answer firstDefence spends the limit as it goes.
Defence sits on top of the limit.
One year, one pot, however many claims.
Do defence costs come out of my E&O limit?
Usually yes, unless the policy says otherwise. The Insurance Bureau of Canada describes professional liability as covering “damages and defence” together. What that definition does not say is which limit the defence is paid from. On most wordings it is the one limit you bought.
That matters more than the headline number does. A claim that takes two years to defend can spend a serious share of the limit before anybody discusses settling. Two firms can carry the same limit and have very different amounts of money left when it counts. The words to look for are defence inside the limit, or defence in addition to the limit.
There is a second number underneath the first one. Most professional policies carry a limit for any one claim and a separate limit for everything in the policy year, called the aggregate. Two claims in the same year share that pot, and a firm that has already used it is exposed for the rest of the year even though the policy is still in force. Ask for both numbers and ask which one the defence spends. Read the Insurance Bureau of Canada on professional liability (opens in a new tab).
Four numbers to ask for by name.
The limit for one claim
The most the policy will pay for a single matter. This is the figure people quote, and on its own it does not tell you very much.
The limit for the year
The aggregate. Everything in the policy period comes out of it. If a bad year brings two claims, this is the number that decides the second one.
Where defence sits
Inside the limit or in addition to it. Ask for the answer in writing, because it changes what your limit is really worth in a long dispute.
What your contracts demand
Where a client contract names a limit and assumes defence sits outside, and your policy has it inside, you are quietly short of what you promised.
Three firms, three long arguments. All three are illustrations, not client files.
The claim that runs for years
Nothing is ever paid to the client. The defence still spends a large part of the limit, and there is less to work with by the time terms are discussed.
The second claim in one year
The first is settled inside the per-claim limit. The second arrives later the same year and meets an aggregate that has already been reduced.
The contract that assumes otherwise
The client contract names a limit and expects defence on top. The policy pays defence from inside it, and the shortfall is the firm’s own.
The questions firms ask about limits.
Is defence outside the limit always better?
It is stronger cover. Ask whether it is available on your class of business and what it costs, because it is not offered everywhere. Then decide with the numbers in front of you.
How big should the aggregate be?
Large enough to survive a bad year rather than a single bad claim. If your contracts routinely demand a limit, the aggregate should be a multiple of it, not equal to it.
Does the deductible apply to defence too?
On some wordings yes, and on others it applies to damages only. Ask which, and ask whether the insurer bills it back to you or expects you to fund it first.
Can I increase the limit after a claim is made?
Not for that claim. The limit that answers is generally the one in force when the claim was first made against you, or when you reported the circumstance it came from. Raising a limit after you know about a problem does not usually help with that matter either, because wordings ask you to declare what you already know. The time to look at limits is at renewal, while nothing is happening.
My client contract just says adequate insurance. Is that fine?
It is vague, which cuts both ways. We would rather see a named limit, because vague wording is argued about afterwards and a number is not.
Two that sit next to this on the same site: what counts as a professional for E&O, and how professional liability limits work. Before any of that matters, there is when you have to tell the insurer at all.
Not the question you had? Send the declarations page and a licensed person will read it with you. Use the short contact form.
A limit is two numbers and a sentence, not one number.
Ask for the per claim figure, the aggregate, and where defence is paid from. We will ask your insurer for all three in writing.
Checked for technical accuracy by Amrit Sidhu of S&S Insurance Services Ltd. Last checked 28 September 2026.