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 necessary for all types of organisations. The policy is necessary for well-established MNCs, small and medium enterprises (SMEs or MSMEs) and start-ups.
It offers coverage for the loss that arises when the directors and officers make mistakes in discharging their duties. Directors and officers of an organisation may commit errors during the course of their jobs. However, these mistakes can cost dearly. Third parties (customers, employees, shareholders, suppliers or other stakeholders) may sue the company or the directors and officers. Legal settlements are expensive. Consequently, 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. It covers the legal costs and the costs incurred in compensating third parties. The policy provides comprehensive scope of coverage. The scope is divided into three parts – Side A, Side B and Side C covers in a D&O policy. Let’s understand what these three parts cover –
Side A cover
In case the organisation itself cannot come to the rescue of directors and officers, Side A cover protects them against financial liabilities. Thus, 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. Therefore, Side A cover protects the personal financial assets of the directors and officers of the company. If there is liability for any wrongful acts, errors, breach of duty, the directors and officers policy’s Side A cover would pay the legal costs and settlements.
Side B cover
Side B cover of directors and officers liability policy covers the liability that the organisation itself faces. The organisation can face high financial costs when it defends its directors and officers and pays the costs incurred in litigation against them. 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 basically covers companies listed on the stock exchange. When these companies incur liabilities for the traded securities, the D&O policy covers them. Therefore, the policy covers the company against the liabilities that it suffers due to any securities related grievances. Consequently, 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.
Hence, Sides A, B and C covers are different features of the coverage of a D&O policy. The organisation should understand the coverage benefits in each section before buying the policy. Then, it should choose the most suitable types of covers that it requires for comprehensive and all-round protection.
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