Defense costs in liability claims are typically paid by the insurer in addition to settlements.

• A. Defense costs are paid by the insurer and are typically not counted against policy limits
• B. Defense costs reduce the policy limits
• C. Defense costs are paid by the insured only
• D. Defense costs are not covered unless a judgment is obtained

Answer: (A)

Defense costs are the expenses incurred while handling a liability claim, such as attorney fees, expert fees, and court costs. In most liability policies, the insurer has a duty to defend the insured and will cover these defense costs in addition to paying any settlements or judgments. Importantly, defense costs are typically paid outside the policy limits, so they don’t reduce the amount available to pay damages or settlements. This reflects the insurer’s obligation to defend the claim regardless of the amount at issue in the settlement or judgment, and it means the insured isn’t paying these costs out of pocket.

Why this is the best understanding: it aligns with how standard liability coverage is structured, where defense costs accompany any settlement or judgment but do not erode the limits available to pay those damages. The idea that defense costs are paid by the insured, or that they only apply if a judgment is obtained, or that they reduce the policy limits, does not fit the typical framework of how defense costs are handled in most policies.