Directors and Officers liability is a comprehensive policy comprised of Side A, Side B and Side C. Side A protects the directors and Officers only, here the claims against directors are taken into consideration when the company is unable to pay because of bankruptcy or legal provisions. On the other hand, Side B and C is required to protect the company against its own liability or its indemnification of its directors and officers.
Side A coverage is an inevitable component of Directors and Officers Liability Insurance. The sole aim of Side A is to safeguard individual directors against legal claims which are not indemnified by the organization. It is an extensive coverage which provides strong support at the time of financial crisis in the company. It acts as a risk bearer and provides a financial shield to directors and top management to protect their personal assets. Side A coverage is vital for Directors as it provides a helping hand at the time of contingencies.
In a typical D&O Liability policy, all three sides are present but directors and Officers do not get much priority at the time of claims because Side B and Side C ensure the protection of the company first and also the amount gets divisible under various heads so directors and Officers do not get sufficient financial protection. In order to avail an adequate coverage for Directors and Officers, Standalone Side A policy or Excess cover can also be used.
Standalone Side A policy is a separate policy specifically purchased for Directors and Officers to provide optimum coverage against litigation occurred due to negligence, omission or wrongful act. An excess cover is an addition to a typical Directors and Officers policy, it provides an additional sum of amount and covers defence cost for all the probable risks when the company can not indemnify directors and Officers. Excess cover compliments the typical policy and provides ample coverage for the top management
A corporation is in bankruptcy and directors are convicted of sharing confidential information of shareholders and manipulating the balance sheet by maintaining fake shareholders account. The company has typical Directors and Officers Liability with Side A, B and C coverage. In this case, the corporation will use the D&O policy as an asset of the company and use it to pay its own liabilities and litigation costs. Directors and Officers get minimal or no support from this policy.
In such cases, Director’s personal assets are in danger and they are held personally liable to cover the cost of litigation and settlement amount. So it is always suggested to ascertain how many shares the directors and Officers possess in a typical D&O policy. If the share is not enough, it is advisable to purchase an excess cover or buy a standalone policy of Side A Directors and Liability insurance policy. Because the company treats the typical D&O policy as its asset and use it in the best interest of the estate.
Side A Directors and Officers Liability Insurance is the need of the hour and it helps in restoration of financial stability after losses. Selecting an optimum coverage of Side A Directors and Officers policy is a complicated financial decision. An effective way to select an optimum coverage is to navigate through the myriad factors such as financial aspects of available plans, risk management portfolio, exclusions in the available plan etc.
It primarily protects Directors and Officers when the company is not able to provide legal and financial protection against non-indemnifiable claims. Side A coverage lives up to the expectations of Directors and Officers as it fosters risk protection, financial planning and wealth management.