What are "Defense Costs" in the context of insurance?

"Defense Costs" in the context of insurance refer to the expenses incurred while defending against claims made against the insured party. These costs can include attorney fees, court fees, expert witness fees, and other related expenses that are necessary to mount a defense in a legal proceeding. It is essential for policyholders to understand that these costs are an integral part of liability insurance, as they serve to protect against the financial burden of defending claims, even if the claims are ultimately found to be without merit.

The choice that indicates that Defense Costs are paid in limited amounts pertains to the fact that these costs may be subject to policy limits. However, this does not define what Defense Costs are. Including costs associated with settlements only overlooks the broader spectrum of legal defense expenses. Furthermore, limiting Defense Costs exclusively to punitive damages fails to recognize that Defense Costs are applicable across various types of claims, not just those involving punitive measures. Understanding this definition helps policyholders better navigate their insurance agreements and the protections afforded to them during legal disputes.