One of the most important insurances that an organization has to purchase is the Directors and Officers Liability Insurance Policy. Litigations against the Directors and Officers are on the rise from multiple stakeholders such as customers, shareholders, employees, competitors, vendors, suppliers etc. and the frequency and quantum of damages awarded against the directors and officers has also risen manifold. Consequently, the D&O Insurance Policy Premiums have also increased correspondingly.
What is the Side A Cover in a D&O Liability Insurance Policy?
Side A Coverage in a D&O Policy provides cover for claims against the directors and officers of a company in case the company is not able to indemnify the directors and officers.
Some common situations where Side A Coverage of a D&O Liability Insurance Policy is triggered is listed below:
The Company is bankrupt and does not have funds to indemnify the directors and officers
Criminal Proceedings are initiated against the directors and officers which prevents the company from indemnifying them
The company may also be prohibited from indemnifying the directors and officers in case of derivative litigation
In absence of Side A Cover, the individual directors and officers would be personally responsible for the legal expenses and settlements in event of a claim. In some cases, the personal assets of the directors and officers would be at risk.
4 Important Points to Consider in the Side A Coverage of a D&O Liability Insurance Policy
There are lot of points to consider in the Side A Coverage of a Directors and Officers Liability Insurance Policy and the company should discuss the same with their insurance broker. Some of the important points are listed below:
1. Coverage Limit: It is extremely important to opt for adequate Coverage Limit in a Directors and Officers Liability Insurance Policy. Traditional D&O Policies have 3 covers: Side A Cover, Side B Cover and Side C Cover. Each of these covers can be triggered individually or jointly. In case of a lawsuit, which involves both the company and the individual directors and officers, the coverage limit can get exhausted.
2. Exclusions in a D&O Policy: One of the most important points is to have a proper look at the exclusions in a Directors and Officers Liability Insurance Policy and comparing D&O Insurance Policy Coverages amongst multiple insurance companies. Any oversight with regards to D&O Policy exclusions can prove to be extremely costly later on.
3. Choose the right D&O Insurance Provider: Selecting the right D&O Insurance Providers for your Directors and Officers Liability Insurance Policy is extremely important. Though, a D&O Policy is fairly straightforward in terms of D&O Insurance Coverage, there may be, for example, difference in definitions which makes the actual D&O Coverage broader or narrower.
4. Retroactive Date: It is extremely important to include retroactive date to ensure continuity in coverages. In the absence of a Retroactive Date in a D&O Insurance Policy, the Directors and Officers might lose out on essential coverage in case a claim arises out of an incident which occurred in an earlier Policy Period.