Common Insuring Agreements in Directors & Officers (D&O) Policy
Side A is the most commonly purchased part of a D&O policy and is the agreement that offers coverage when an organization is unable or unwilling to indemnify its directors and officers. It is referred to as the personal protection part of a D&O policy. Over the years, one of the most common triggers for this coverage has been bankruptcy, but the list of potential claims that would trigger the coverage is quite long (including a derivative suit). The Side A agreement in the insurance policy typically does not have a deductible which is why most brokers refer to it as first-dollar coverage. Side A can also be very attractive, particularly to outside directors who are putting their personal assets at risk. Although most organizations provide broad indemnification language to their board members through corporate bylaws, if there is no money available to make good on the promise within the bylaws, the D&O policy can fill this gap.
Side B is the part of the D&O policy that reimburses a company when it is obligated to pay for suits against its directors and officers. This agreement in the insurance policy typically has a deductible and therefore is not considered first-dollar coverage. Deductibles for Side B can range from a few hundred dollars to several thousand or even a million dollars, depending on the size, cash position, and risk appetite of the company.
Side C of the D&O policy is very commonly referred to as entity coverage and like Side B, it is not a first-dollar coverage (a deductible will typically apply). It covers the company itself whenever a suit is brought directly on the organization, usually in conjunction with the Directors and Officers. Private companies have the option of purchasing a more robust version of this insuring agreement when compared to their public counterparts due to the fact that Side C will only cover a public company for securities claims.