The term “loss” (or sometimes “ultimate net loss”) is almost always defined in D&O policies. “Loss” is usually defined to mean or include damages, judgments, settlements, and claim or defense costs, subject to certain exclusions. However, because various policies define “loss” differently, the definition should be carefully reviewed. A typical definition of “loss” is shown in the following example.

“Loss” means “claims expenses”, compensatory damages, settlement amounts, legal fees and costs awarded pursuant to judgments. “Loss” does not include civil or criminal fines or penalties imposed by law, punitive or exemplary damages, the multiplied portion of multiplied damages, taxes, or matters that are uninsurable pursuant to applicable law.

ISO Properties, Inc., MP 00 01 04 03

Definition of “Claims Expense”

The term “claims expenses” in the previous example is also a defined term in the policy, as shown in the next example.

C. “Claims Expenses” means that part of a “loss” consisting of reasonable and necessary fees (including attorneys' and experts' fees) and expenses incurred in the defense or appeal of a “claim”, excluding the wages, salaries, benefits or expenses of any director, officer or employee of the “company”.ISO Properties, Inc., MP 00 01 04 03

The inclusion of defense expenses within the definition of “loss” in most D&O policies is significant in two important ways. First, it provides that the limit of liability includes defense costs. These expenses are generally not covered in addition to the limit of liability, as they are in the standard commercial general liability policy. Some policy forms will reinforce this position by clearly stating so in the policy, as illustrated in the following example.