Summary: The Insurance Department of Connecticut has issued an important notice to commercial insurers and producers providing guidance on the Department's position on the allowable lines of insurance having "defense within limits" provisions and the type of required consumer disclosure for these policies. The actual notice can be found here. 

Defense within limits (DWL) provisions provide for an insurer's costs in defending the insured to be offset against the policy's liability coverage limit. Traditionally, the DWL provision has been offered in connection with policies issued on a claims-made basis. Because the limit includes the defense costs, there is a premium savings to the insured for selecting this option. However, in theory those legal costs could exceed the liability limit on the policy, and once exhausted, there would be no remaining limit available to the insured for any unpaid damages or defense costs in excess of the limit. This means that the defense costs would ultimately erode the policy's limit of liability. 

Because of this potential exposure to the insured in eroding the liability coverage limit, the Connecticut Insurance Department has take the position that DWL provisions may only be offered for specific commercial lines policies: