Personal Finance Essentials
The Three Sides of D&O Coverage
D&O Insurance > The Three Sides of D&O Coverage
D&O policies are typically structured in three distinct coverage components, commonly referred to as Side A, Side B and Side C.
Understanding what each side covers helps organizations and their leaders make sure they have the right protection in place.
Side A
Side A coverage protects individual directors and officers directly when the organization cannot or will not indemnify them. This situation arises in cases of corporate insolvency, when the company does not have the funds to cover defense costs or settlements, or when applicable law prohibits indemnification. Side A is the most critical protection for individual leaders, because it applies precisely when the organization itself is unable to stand behind them.
Side B
Side B coverage reimburses the organization when it has indemnified its directors and officers on their behalf. In most situations, companies will advance defense costs and cover settlements for their leaders – Side B replenishes the company’s balance sheet after it has done so. This keeps the financial burden from falling entirely on the organization while still protecting the individuals involved.
Side C
Side C coverage – sometimes called entity coverage – protects the organization itself in the event of securities claims. This applies primarily to publicly traded companies that may be named as co-defendants alongside their directors and officers in shareholder litigation. Private companies and nonprofits may have more limited need for Side C coverage, though it is worth discussing with an insurance professional.