Understanding the Sides to D & O Coverage
Directors and officers coverage, commonly referred to as D&O coverage, comes in a variety of forms including some specifically tailored to the entity form, management structure, or specific risks faced by a particular endeavor (such as hospital directors and officers liability, school board liability, executive or management liability, and association or nonprofit directors and officers liability).
Though sometimes packaged with other coverages, D&O coverage has at least one or as many as four—but usually at least two, Side A and Side B—of the following distinct coverage parts (commonly called sides):
- Side A : The coverage from which D&O insurance derives its name. This coverage directly protects and indemnifies the members of an entity’s governing body and executives from claims against such individuals in that capacity. When an entity, itself, is bankrupt, insolvent or otherwise unwilling or unable to defend and indemnify these individual insureds, this coverage, including the defense it affords, can, where available, be invaluable. The insured’s defense can sometimes be the most important (if not the only benefit) this coverage affords, such as when an insured faces potential criminal liability in connection with the insured’s service to the entity.
- Side B : This coverage, sometimes referred to as corporate reimbursement coverage, repays the entity for amounts expended pursuant to its contractual, corporate or statutory obligation to defend and indemnify members of its governing body or executives for claims against such individuals in those capacities.
- Side C : This coverage, often called entity securities coverage, protects and indemnifies an entity from claims against that entity related to ownership interests (e.g., securities) it has issued.