D&O insurance policies offer liability cover for company managers to protect them from claims that may arise from the decisions and actions taken within the scope of their regular duties. There is a wide variety of D&O insurance products and options available, but one of the most valued by individual directors and officers is the Side A insurance policy. Let us understand why.
| Cover | Description | Who is the insured? | What is at risk? |
| Side A | Protects assets of individual directors and officers for claims where the company is not legally or financially able to fund indemnification | Individual officer | His/her personal assets |
| Side B | Reimburses public or private companies to the extent that it grants indemnification and advances legal fees on behalf of directors/officers | Company | Its corporate assets |
| Side C | Extends cover for the public company (the entity, not individuals) for securities claims only | Company | Its corporate assets |
Side A insurance provides direct coverage for individual directors and officers policy when the organization is legally unable or unwilling to indemnify its directors and officers. Among more common reasons for this failure to indemnify are
- Bankruptcy or insolvency of the organization
- The legal prohibition against indemnification
Without Side A coverage, if a claim situation were to arise. The individual directors and officers would be personally liable for significant legal expenses, judgments, and settlements. Moreover, without the benefit of a Side A policy, an organization may find it difficult to recruit, attract and retain the most qualified candidates for its operations and corporate governance.
Additional Read: What are Side A, B, and C covers in a D&O policy?
Let us understand the Side A claim process with the help of an illustration :
- A manager allegedly fails to perform his/her management role
- As a result, several internal and external people (claimants) decide to sue the manager
- The manager receives notification of the claim, typically through a legal notice.
- The manager contacts the legal department of the company and informs them about the claim
- The legal department intimates the claim to the insurer with relevant claim details
- If the claim is covered the insurer pays the defense cost as per the terms and conditions of the policy
- If the claim is covered and the case is lost the insurer covers the total loss resulting from court proceedings
- If the manager is not insured, he/she has to pay for the loss from his personal assets. It can result in acute financial distress for the manager.
Therefore an optimum D&O cover must necessarily include Side A coverage.
Frequently Asked Questions (FAQs)
1. What is Side A coverage in a Directors and Officers (D&O) liability insurance policy?
A) Side A coverage is the specific insuring agreement in a D&O policy that provides direct financial protection to individual directors, officers, and executives when the company is legally or financially unable to indemnify them. It covers personal defense fees, legal costs, and court settlements directly to the insured individual.
2. When does Side A D&O coverage get activated instead of Side B or Side C?
A) Side A coverage is activated when an organization fails or is legally prohibited from indemnifying its directors. Common activation triggers include:
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Corporate Insolvency or Bankruptcy: The company’s assets are frozen, leaving it unable to reimburse its leaders.
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Legal Prohibitions: Statutory rules or court restrictions prevent the entity from paying for defense in direct derivative actions.
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Refusal to Indemnify: The organization defaults on its indemnification obligations.
3. What is the difference between Side A and Side B in D&O insurance?
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Side A Coverage: Protects the personal assets of individual directors and officers directly when the organization cannot indemnify them (non-indemnifiable loss).
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Side B Coverage: Reimburses the corporation’s balance sheet after the company has already indemnified its directors or officers for legal fees and settlements (indemnifiable loss).
4. Why is Side A D&O insurance essential during corporate bankruptcy?
A) When a company files for bankruptcy, standard corporate assets-and often general policy funds-become subject to automatic stays by bankruptcy courts. Side A coverage specifically protects the personal wealth of executives, ensuring they receive uninterrupted legal representation without waiting for bankruptcy proceedings to resolve.
5. How does a Side A D&O insurance claim work step-by-step?
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An executive receives a legal notice or lawsuit alleging managerial errors or breach of duty.
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The executive notifies the corporate legal department or risk management team.
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The claim is submitted to the D&O insurer with supporting case documentation.
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Upon coverage confirmation, the insurer pays defense attorney fees and court expenses as incurred.
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If the lawsuit results in a covered settlement or loss, the insurer pays the monetary damages up to policy limits.
6. Why do independent directors insist on having dedicated Side A D&O coverage?
A) Independent directors do not manage daily operations and serve in advisory roles, yet they face equal legal exposure. Since they cannot rely on corporate balance sheets during financial crises, dedicated Side A coverage guarantees that their personal assets remain protected against claims of board-level oversight failure.
About The Author
Rajesh
MBA Finance
With a wealth of expertise in the insurance realm, Rajesh is a distinguished writer specializing in articles focusing on directors and officers insurance for SecureNow. Boasting 9 years of experience in the industry, he profoundly understands the complexities surrounding directors and officers liability coverage. Their articles delve into the intricacies of D&O insurance, providing readers with invaluable insights into risk mitigation strategies and policy considerations. Renowned for their comprehensive knowledge and attention to detail, Rajesh is dedicated to delivering informative and engaging content that empowers individuals and businesses to navigate the complexities of insurance with confidence.
