Directors and officers liability insurance, commonly known as D&O insurance, is meant to protect top executives in the event that their organizations face legal jeopardy. It can also help pay for the organizations’ legal costs. D&O insurance can cover situations involving both for-profit and nonprofit organizations, and can apply to cases involving civil lawsuits or regulatory actions.
Most often, D&O insurance policies have three main facets, commonly known as Side A, Side B and Side C.
Side A
The first of these categories of coverage is meant to protect top executives in the event that the organization does not pay to resolve claims. A director or officer carries this insurance in order to protect their personal finances. For example, in some situations, after an organization has declared bankruptcy, an executive may be held personally liable for some of the organization’s debts. Side A coverage would help cover the executive’s losses.
Side B
The second of these categories is carried by the organization. Side B policies apply to situations where the company has paid for indemnification to resolve claims. It helps the company pay for its legal costs and reimburse top executives for their personal losses.
Side C
The final of these categories covers the corporate entity. Side C covers the company when its assets are exposed to liability.
Do these policies do what they are supposed to?
Companies of all sizes can face costly lawsuits and other damaging legal actions. Even in cases where the entity was set up very carefully to protect personal liability, the personal finances of the individuals involved may face some exposure. D&O insurance can protect companies and their leaders in these situations.
That said, these policies don’t always do what policyholders think they are supposed to do. And, of course, insurance companies don’t always pay what they should. Because these policies and situations are so complex, anyone facing a dispute involving D&O insurance should seek out advice from attorneys with experience in business and insurance law.