The ABCs of Directors and Officers Insurance
Feb 26, 2021
What does side A, B & C cover in D&O Insurance?
Directors and Officers Insurance may seem a bit complicated as not all Directors and Officers policies are the same. However, it may be helpful to know that most share a common structure that is referred to as the Side ABC, or more specifically Side A, Side B and Side C. Learning a little about each of these different sides can be a great step towards making sure that you find the right Directors and Officers Insurance for your business. Each side serves a different purpose, so we are going to take this opportunity to provide a brief explanation of each side (A, B, and C,) and to explore when and/or why they may be triggered. Let's work together to learn the ABCs of D&O Insurance!
Side A of D&O
Side A provides coverage for directors and officers when the company does not indemnify them for the costs associated with a lawsuit - such as defence costs or settlement/judgement ruled against them. Usually, the directors and officers are reimbursed (see Side B), but there are times when the company cannot do so either by law or otherwise.
Side B of D&O
Side B exists as coverage for the corporation in the event that the company does indemnify the directors and officers of the corporation.
Which Side Will be Triggered; Side A or Side B?
Side A is triggered when Side B cannot indemnify by law, corporate authority, or contractually. For example, when shareholders bring a lawsuit against the directors and officers. In a sense, this is the company bringing a lawsuit against the board. It doesn’t make sense for the company to indemnify these individuals, so instead, Side A is triggered.
The following are examples of instances when Side A would be triggered over Side B:
- When accusations of “bad faith” arise due to decisions having been made that were not in the best interest of the company.
- In the event that public policy or statute prohibits the company from indemnifying the directors and officers.
- If the corporation cannot or refuses to indemnify the directors and officers. An example of this would be hostile takes overs; why would the corporation support the directors and officers who are hostile?
- Nearing insolvency: this could be for a multitude of reasons, the main one being the directors and officers could be accused of breach of duty due to prioritizing themselves over the corporation and its creditors.
- Actual insolvency or bankruptcy: again, the directors and officers could affect the creditors that are waiting for payment or settlement from the estate of the corporation.
Side C of D&O
Side C is often referred to as Entity Coverage. For publicly traded companies, this provides coverage related to securities traded by them as well as any security-related grievance.
Examples of lawsuits that Side C would trigger include:
- Allegations of misleading.
- Deceptive or unconscionable conduct.
- Breach of fiduciary duty.
- Breach of continuous disclosure obligations.
- Failure to disclose material facts. This is usually coupled with claims that allege a company’s financial position or profitability was misstated.
Get a better idea of what is Directors & Officers Insurance to see whether or not your organization needs it.
If you would like to attract the best directors and officers to your business, it is a fantastic idea to consider including Directors and Officers Insurance as a part of your business's insurance solution. Having the right D&O coverage will help make that dream a reality. Foxquilt specializes in Business Insurance because we know from personal experience that it can be challenging to find tailored coverage for businesses. We are constantly working towards finding ways to help Business Insurance make sense for your unique business by providing tailored coverage that works for your business' specific needs. Get started on your online quote today.
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