Side A D&O Coverage: 6 Things You Should Know
Whether you lead a Fortune‑500 giant or a community church, Directors and Officers (D&O) insurance belongs on your risk‑management checklist. Any organization with more than one stakeholder needs the protection, especially Side A D&O.
Side A D&O provides financial protection when a company cannot, or will not, indemnify its individual directors and officers. That can happen because of insolvency, public‑policy restrictions, or a court order.
Since it shields personal assets, Side A is critical. Without it, board members risk losing their homes, savings, stock portfolios, and more if they are named in a suit and the company cannot back them up.
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D&O Coverage Overview
| Side of D&O Policy | What the Insuring Agreement Pays For | Who Is Insured (Gets the Benefit) | Typical Claim Trigger |
|---|---|---|---|
| Side A - "Non-Indemnifiable" Coverage | Defense costs, settlements, and judgments that individual directors and officers must pay when the company cannot or may not legally indemnify them (e.g., insolvency, derivative-action settlement not indemnifiable, legal prohibition). | The individual directors and officers themselves. | A lawsuit, investigation, or formal demand alleging a "wrongful act" by a director/officer and the company is unable or legally barred from reimbursing them. |
| Side B - "Company Reimbursement" Coverage | Reimburses the company for the indemnity it has already paid (or is legally obligated to pay) to directors and officers for their defense costs, settlements, or judgments. | The company (as the policyholder) is reimbursed, but the money ultimately benefits the directors/officers it indemnified. | The company indemnifies its directors/officers after a claim alleging a wrongful act; it then submits those paid amounts to the insurer for reimbursement. |
| Side C - "Entity" Coverage | Defense costs, settlements, and judgments arising from claims against the company itself. For public companies this is usually limited to securities-related claims (e.g., alleged misstatements, stock-drop suits). Private-company forms may be broader. | The corporate entity (and, typically, its subsidiaries). Directors/officers are still covered under Sides A & B for parallel allegations. | A claim naming the company as a defendant— most commonly a securities class action (public company) or another covered "organizational wrongful act". |
History of Side A D&O Insurance
D&O liability cover has been around since the early twentieth century, but it has changed dramatically. Pivotal periods including the post‑Great Depression era, the shareholder activism wave of the 1960s, and the U.S. savings and loan crisis of the 1980s were especially influential, pushing insurers to separate Side A, B, and C coverage.
Side A was created to protect individuals when the company itself could not or would not step in. That need has only grown as claims have expanded to everything from poaching employees to environmental violations.
Below are six things you should know about Side A D&O coverage.
1) Side A D&O insurance is designed to protect the personal assets of your directors and officers.
As noted above, Side A responds when indemnification is barred by law or when the organisation is insolvent. Bankruptcy, derivative litigation, regulatory and criminal proceedings, and even acts of bad faith can all leave board members stranded if Side A is not in place.
2) The Yates Memorandum ushered in more individual accountability.
A 2015 memo from former U.S. Deputy Attorney General Sally Yates stated that one of the best ways to curb corporate misconduct is to hold wrongdoers personally liable. The Department of Justice laid out six steps, starting with full disclosure of every individual involved, that make it tougher for executives to hide behind the corporate veil. Side A is the safety net when that spotlight lands on your leaders.
3) Side A limits are often shared with Side B and C (and sometimes other coverages).
Many D&O or broader management‑liability policies place all three sides under one aggregate limit. A lawsuit naming both the company and its directors can burn through that shared pot, leaving little for the individuals who need it most.
Our take: either buy higher limits or layer in a dedicated Side A Difference‑in‑Conditions (DIC) policy.
4) A Side A DIC policy gives executives extra protection and dedicated limits.
We typically recommend a primary D&O policy with Sides A, B, and C, plus an excess Side A DIC layer. Although it sits above the primary tower, a DIC policy can drop down when:
- It provides broader terms;
- Presumptive indemnification is invoked;
- An underlying insurer tries to rescind;
- Limits underneath are exhausted;
- An underlying carrier is insolvent; or
- Underlying policies are treated as assets in bankruptcy.
That drop‑down feature guarantees a pool of money set aside just for the people at the helm.
5) Defence costs erode your limits quickly.
When you choose limits, remember that the same pot must cover settlements and legal bills. Complex, multi‑party litigation can chew through millions before you reach the courthouse steps. Buy ample limits, or select a policy that pays defence costs outside the limit, to avoid an unwelcome surprise.
6) Switching D&O carriers? Do not leave a gap.
Unlike occurrence‑based general liability, D&O is usually claims‑made. The claim has to occur and be reported during the policy period, which runs from the retroactive date to the expiry date (or the tail). If you ever cancel or change carriers, purchase tail coverage or secure an identical retro date. Otherwise a claim that traces back even a day before the new policy starts can be denied.
Side A D&O claim examples
- Insolvency and shareholder action: Following the global financial crisis, a large financial institution declared bankruptcy. Shareholders sued its directors for alleged mismanagement. When the company could not indemnify them, Side A paid the directors’ legal expenses.
- Regulatory restriction on indemnification: A health‑tech startup was investigated for misrepresentation. State regulators barred indemnification. Side A covered the CEO’s defence costs.
- Bad‑faith breach of fiduciary duty: A CEO pursued personal gain at the company’s expense. Shareholders filed a derivative action. Because the acts were deemed bad faith, indemnification was illegal, and Side A handled the defence and settlement.
Summary
Side A D&O is the firewall between your board members’ personal wealth and the liabilities that come with leadership. Pair it with adequate limits, consider dedicated side a limits, and keep your retro or tail provisions tight to get the best results.
Side A D&O FAQ
About The Author: Austin Landes, CIC
Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.