How are lawyers paid by insurance companies in the case of a lawsuit?

In other words, let's say that an insured motorist is sued for personal injury. Does the motorist's insurance company engage and pay the attorney for the motorist directly, or does the motorist have to pay the attorney and then later make a claim to be reimbursed for legal expenses?

  • Is this United States, regulations may vary. Some of this will also be in the Insurance Policy document. – Dheer Nov 29 '18 at 11:12
  • Regulations don't really vary in the united states - the insurance company almost always provides defense directly. – Ben Mar 8 at 21:20

In the United States, almost all insurance policies includes a "duty to defend" clause which means that if someone takes legal action against a policyholder, they are essentially taking action against the company too and the company has the duty to defend the insured (either settle the claim or provide for legal defense). The insurance company pays for the lawyer directly either because they are an in-house attorney or a retained outside litigation firm.

It may be the case that there is a sub-limit on the legal defense costs, but most plaintiffs attorneys will settle for the limit of the policy.

  • 1
    This was our experience when my daughter was sued (she was served with no warning at the campus police office at her out-of-state college on the last day of the 3 year statute of limitations). The insurance company hired a local attorney, and, aside from providing them with some information via email, we had no contact with them. It took a couple of years to grind through the process, but it finally got settled, and we got a notification that the suit had been dismissed. Stressful, but no out-of-pocket cost to us beyond our premiums. – Rick Goldstein Mar 8 at 21:44

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