Directors and Officers Liability Insurance

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What are Side A, B and C covers in a D & O policy?

A Directors and Officers (D & O) Liability insurance policy is a very effective and essential  liability cover that is required for any type of organisation – from well established MNCs to small and medium enterprises (SMEs or MSMEs), especially for start-ups. The policy offers coverage for the loss suffered if the directors and officers of a company make any inadvertent mistakes in discharging their duties. Directors and officers of an organisation are human beings who may commit errors during the course of their job. These mistakes can cost dearly when third parties (customers, employees, shareholders, suppliers or other stakeholders) sue the company or the directors and officers for the mistake committed. Legal costs and settlements are expensive and in the event of litigation, the company and the directors and officers might find themselves in financial trouble. 

A D & O policy takes care of this financial trouble and pays the legal costs as well as the costs incurred in compensating third parties. The policy provides  comprehensive scope of coverage which is divided into three parts. These parts are called Side A, Side B and Side C covers. Let’s understand what these three parts cover –

Side A cover

Side A cover is meant for covering the directors and officers of the organisation in case the organisation itself cannot come to their rescue. If the company files for bankruptcy or becomes insolvent and is unable to pay the claims on behalf of the directors and officers, the D & O policy pays the claims. Side A cover, therefore, protects the personal financial assets of the directors and officers of the company. If they are sued for any wrongful acts, errors, breach of duty, etc., the legal costs and settlements (if any) would be paid by the directors and officers policy’s Side A cover.

Side B cover

Side B cover of directors and officers liability policy is meant for covering the liability faced by the organisation itself. When the organisation defends its directors and officers and pays the costs incurred in litigation against them, the organisation can face high financial costs. Side B cover indemnifies the organisation for this loss suffered. So, if the organisation incurs legal costs and pays settlements to third parties on behalf of its directors and officers, it can claim for a reimbursement of such costs under Side B cover of the D & O policy.

Side C cover

Side C cover is basically for companies which are listed on the stock exchange and which incur liabilities for the securities traded by them. The policy, therefore, covers the company against the liabilities that it suffers due to any securities related grievances. If the shareholders file a lawsuit against the company for any reason related to the securities traded on the stock exchange, Side C cover would indemnify the company for the legal costs incurred. 

Sides A, B and C covers are hence different features of the coverage offered by a D & O policy. The organisation should understand the coverage benefits in each section before buying the policy and choose the most suitable types of covers that it requires for its comprehensive and all-round protection. SecureNow provides you various options for a Directors and Officers Liability policy that offer best benefits with costs that are significantly lower (at least at 20% less price) than what you would otherwise get from the market.