It is critically important to know whether a liability insurance policy is a burning limits policy, also referred to as a self-consuming policy, an exhausting policy, or a defense-within-limits policy. With a burning limits policy, all defense costs and expenses incurred, reduce the limits of the policy. This includes legal fees, expert consulting fees, expert witness fees, court filing fees, witness fees, and other costs and expenses. In short, these costs and expenses reduce the amount of funds available to settle a case or pay a judgment. A burning limits policy creates conflicts of interest and puts pressure on the insured, the plaintiff, the defendant, and defense counsel for both the defendant and plaintiff.

A conflict of interest may arise because the defense attorney wants to pursue costly litigation while the insured wants to settle quickly within the policy limits in order to protect his or her assets.

Burning limits provisions, are commonly found in liability policies, including directors and officers' liability policies, professional liability policies, and employment practices insurances policies.

Using services of an independent insurance broker is the surest way of making certain you are receiving the most complete insurance coverage for every dollar invested.