Directors and officers (D&O) liability insurance policies can vary greatly from insurer to insurer. For this reason, it is important to understand the basic components of a policy so you can select the coverage that is right for your business.
A typical D&O policy has three parts: A, B and C.
This option can provide coverage for the company, as well as separate coverage for the company’s individual directors and officers – reimbursing them directly for liability claims arising from their corporate duties. Reimbursement for individuals may be triggered through a stand-alone side A policy (often referred to as a “difference in conditions” or DIC policy) when the company is not able to indemnify the directors and officers due to lack of funds or insolvency, or through regular A side cover offered in the primary policy.
- Side B Coverage – When claims are brought against the company, side B provides coverage for the business, reimbursing it for expenses that it must pay on behalf of its directors and officers for its indemnification obligation. This coverage is typically subject to a self-insured retention limit or deductible that is outlined in the policy.
- Side C Coverage – Also known as “entity securities coverage,” side C provides coverage for the business for its own separate legal liabilities when it is named in a securities-related claim or lawsuit. Side C is also subject to a self-insured retention limit or deductible.
D&O Liability Insurance is a Claims-Made Policy
It is important to understand that a D&O insurance policy is considered a claims-made policy. Simply put, a claims-made policy covers an insured for claims on active policies, regardless of when the claim event occurred.
Some insurers also offer a more limited version of a claims-made policy, known as the claims-made-and-reported policy. With this contract, coverage is provided for claims that are made against the insured and reported during a specific policy period. For this reason, some businesses elect to purchase “tail” insurance so that in the event a claim is reported after the policy’s expiration date, the business will be covered. Tail coverage is especially critical in a merger or acquisition transaction to protect the acquired company from previous claims.
These are just the basics of a D&O policy. If you have a business in need of D&O insurance or would like to learn more about D&O tail coverage, contact the experts at Oakwood D&O. We have over 15 years of experience specializing in all aspects of management liability, with an ardent focus on D&O insurance.
To learn more, get in touch! Email Eli Solomon, CEO, at firstname.lastname@example.org or call 323-686-7519. You can also follow Oakwood D&O on LinkedIn.
Sources: Investopedia and the International Risk Management Institute
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