Directors and Officers Liability Insurance
Directors and Officers Liability Insurance (D&O) combines three distinct coverages within one policy form. The first, often referred to as Non- indemnifiable or “A-Side” coverage, pays the loss of the individual directors and officers for covered losses in situations where the company may be
unable to indemnify them. As an example, a company may be prohibited from indemnifying its directors and officers due to public policy in certain instances, or may be unable to meet its indemnification obligations due to financial insolvency. A-Side coverage typically applies on a “first dollar” basis (i.e. no deductible applies), unless specific state insurance laws dictate otherwise.
The second – or “B-Side” – coverage reimburses the company for its indemnification obligations to its directors and officers pursuant to its charter, by-laws or other contractual arrangements.
Finally, the policy provides direct protection for the company itself under the “C-Side” or “Entity” coverage insuring agreement. The addition of entity coverage has proven to be a strong benefit to insureds, as it negates the contentious allocation issue that arose when claims were made against both covered directors and officers and uncovered corporate entities. It is important to note that D&O insurance is by no means a commodity product - there are many insurance companies offering this coverage and each utilize their own proprietary policy forms that – apart from the basic insuring agreements – contain unique terms and conditions. In general, coverage has improved substantially in recent years; however, each policy must be reviewed individually and tailored as necessitated by the risk profile of a specific insured.
Courtesy of RT Specialty