Policy limits are typically quoted in two ways:
- Per-loss limit, the maximum coverage available for a single claim, regardless of the number of parties involved.
- Annual aggregate limit, the maximum payout for all claims presented during the policy term.
A D&O policy usually treats defense costs within the limit of liability. Attorneys' fees and related costs erode the coverage available for settlements and judgments.
Unlike some other liability policies, a typical D&O contract treats defense costs as reimbursements.
After securing the insurance company's consent to engage counsel, the policyholder pays its own defense costs and seeks reimbursement from the insurer after the fact.
Duty to defend
Some newer D&O policies provide a "duty to defend" option, delegating to the insurance company responsibility for selecting, paying and controlling defense counsel. This approach may appeal to small- and medium-sized church organizations lacking the staff or expertise to manage complex litigation.