Which statement about Supplementary Payments is true?

• A. They are the same as indemnity payments for losses.
• B. They apply only after the policy limits are exhausted.
• C. They include defense costs and bonds and are paid in addition to the policy limits.
• D. They never include costs other than defense costs.

Answer: (C)

Supplementary payments are amounts the insurer pays to cover defense-related expenses in addition to the liability limit. They typically include defense costs, court costs, and bonds (such as appeal or other required bonds). Because these costs are paid in addition to the policy’s limit of liability, they don’t reduce the amount available to pay damages. This is why the statement that they include defense costs and bonds and are paid in addition to the policy limits is true. Indemnity for losses is a separate type of payment, and supplementary payments are not limited to costs only after exhaustion of the limit; they’re designed to cover defense and ancillary costs as the claim progresses.