The current CGL form states that “reasonable attorneys' fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages”. This answers the question about defense cost coverage in the affirmative since the word “damages” is the key word. The exception to the contractual liability exclusion in the CGL form states that the exclusion does not apply to liability for damages assumed under an insured contract; therefore, if the defense costs for the entity other than the insured are damages, the CGL form will cover them.

Note that there are some conditions to be met before the defense costs are deemed to be damages, namely, liability for the defense costs has to be assumed in the insured contract and the defense costs have to be for defense against alleged damages that are covered by the insured's policy. And, note that one would have to look to the supplementary payments section of the CGL form to see whether these defense costs for the indemnitee are included within the limits of insurance. In the supplementary payments section, the insurer declares that payments for attorneys' fees and litigation expenses for a party other than an insured will not reduce the limits of insurance provided that the enumerated conditions are met.