D&O insurance coverage can be challenging to understand, particularly due to the nuanced coverage provided by the various “sides” – Sides A, B, and C.
Directors and Officers (D&O) insurance is critical protection against liability for organizations no matter their size.
Its primary purpose is to address losses stemming from errors made by directors and officers in the execution of their duties.
We’ll explain what it all means below.
Side A
Side A focuses on protecting individual directors and officers when an organization fails to indemnify them due to reasons such as bankruptcy, insolvency or legal constraints.
This insurance is typically purchased by the organization to safeguard the personal assets of its directors, covering legal costs incurred in defending against third-party lawsuits targeting individual officers.
Without Side A coverage, directors could face substantial personal exposure, risking their homes and other assets in the event of legal action.
Side B
Side B, also known as corporate reimbursement coverage, reimburses organizations for costs incurred when indemnifying directors and officers for wrongful acts.
This type of coverage is essential in the face of a complex regulatory environment and high-stakes industries where boards may make errors or decisions based on incomplete information, leading to legal claims.
Failure to have Side B coverage leaves organizations bearing the financial burden of defending against lawsuits arising from directors’ actions.
Side C
Side C, or entity coverage, offers liability protection to organizations themselves when they are sued alongside their directors and officers.
Publicly listed companies, for example, could be held liable for security-related grievances which is a key exposure for this type of company.
However, private companies will benefit from an all-risks policy, extending coverage unless specifically excluded.
Lack of Side C coverage exposes organizations, especially publicly listed ones, to legal costs associated with claims against the company itself.
Purchasing a “standalone” Side A D&O Insurance Policy
Organizations can either buy a Side A policy on its own (a “standalone policy”) or they can purchase it alongside Sides B and C.
Conventional standalone “Side A” coverage proves valuable as it can promptly address certain critical expenses. This means that businesses aren’t compelled to depend on Side B, covering indemnity costs upfront and avoiding the need for subsequent reimbursement.
Furthermore, in cases where an organization lacks Side A protection and declines to indemnify a claim, the director or officer may be required to fulfill a “Side B self-insured retention” before the Side B insurance policy takes effect. This has the potential to be a significant amount..
Thinking about whether D&O Insurance is right for you?
Deciding if D&O insurance is right for your organization requires careful consideration of the unique risks you face.
Seeking guidance from experienced insurance consultants is recommended to ensure the right coverage is in place, allowing organizations to focus on success with the assurance of protection.
The insurance brokers at Axxima are experts when it comes to D&O coverage. They can help you decide whether this type of insurance is right for you.
Get in touch with their team to ensure both you and your organization are protected.