What happens after the insurer pays the Limit of Insurance?

• A. The insurer no longer has a duty to defend
• B. The insured gains unlimited defense rights
• C. The insurer pays additional claims automatically
• D. The policy terminates

Answer: (A)

The main idea is that the liability limit is the maximum the insurer will pay for a given claim, including any defense costs counted against that limit. Once that amount has been paid, the policy has no remaining coverage to apply to that claim, so the insurer’s duty to defend ends. In most liability forms, defense costs are part of the limit, so once the limit is exhausted, there’s no money left to fund further defense or additional indemnity for that claim. The policy itself isn’t necessarily terminated for all concerns—it may still cover other, separate claims or occurences within the policy’s term, but for that specific claim the insurer has no further obligation after the limit is paid.