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To a Paladin, the shield is a symbol of his faith. Particularly devout Paladins can channel their faith into their shields, bolstering its defensive value with holy energy. The purer his faith, the greater his defense.
Skill level is applied when cast, although casting a lower level while a higher one is active does not overwrite it (it just costs mana); casting an equal level resets duration, which casting a higher level overwrites a lower one.
Character screen incorrectly uses current skill level when adding shield damage to Smite.[1]
Shield damage is added before +% Damage is applied.
+% Defense applies to total defense, not just that of the shield, but only while a shield is equipped.