Directors and Officers Liability Insurance (D&O) protects business leaders. It covers defense costs, settlements, and court judgments when someone sues a company’s directors or officers. These claims often allege mismanagement, breach of duty, or poor decision-making. Without this coverage, directors and officers risk their personal assets.
Having D&O coverage insurance is essential. It helps attract qualified professionals to leadership roles. It also gives current board members peace of mind.
Here’s a breakdown of the key coverages in a typical D&O insurance policy:
Side A Coverage
Side A coverage protects individual directors and officers directly. It applies when the company cannot or will not indemnify them.
If the company is bankrupt or legally barred from offering protection, Side A steps in. It covers legal defense costs, settlements, and judgments. For example, if a director is personally sued for a decision made during their service, Side A coverage helps pay the legal bills—without relying on the company.
This is crucial for situations where company protection isn’t available. Without it, leaders might hesitate to serve.
Side B Coverage (Corporate Reimbursement)
Side B coverage reimburses the company after it pays on behalf of its directors and officers. Many companies have bylaws that require them to defend and indemnify their board members.
When the company pays those legal costs, Side B coverage helps the company get that money back. It supports the company’s ability to back its leaders without suffering major financial strain.
In short, Side B protects both the company’s finances and its people.
Side C Coverage (Entity Coverage)
Side C coverage protects the company itself. It applies when the company is named directly in a lawsuit, often alongside its directors and officers.
This is common in lawsuits involving securities violations, shareholder disputes, or regulatory investigations. If investors accuse the company of misleading them through financial statements or disclosures, Side C provides coverage.
Without Side C, the company would have to pay out-of-pocket to defend itself, even in cases involving multiple parties.
Entity Securities Coverage
This coverage focuses on securities-related claims. These may include false or misleading statements in financial documents, errors in public filings, or miscommunication in shareholder materials.
Shareholders, regulators, or even customers may bring these claims. If a company goes public or trades on the stock exchange, this coverage becomes especially important.
It shields both the company and its executives from the legal costs tied to such complex lawsuits. Securities claims are often expensive and time-consuming. Entity securities coverage provides vital protection in these cases.
Employment Practices Liability (EPL) Coverage
Some D&O policies offer EPL coverage as an add-on or endorsement. It covers claims related to how the company treats its employees.
This includes lawsuits over wrongful termination, discrimination, sexual harassment, retaliation, or hostile work environments. Directors and officers can be held personally liable for employment-related decisions, even if they were not directly involved.
EPL coverage helps pay for legal defense, court awards, and settlements in these cases. It gives added protection for leadership teams and the organization as a whole.
Non-Profit D&O Coverage
Non-profit organizations face unique challenges. Their leaders often work with limited resources and many volunteers. They may also face scrutiny over how they raise and spend funds.
D&O insurance for non-profits covers claims tied to governance, fundraising practices, volunteer management, and mission oversight.
If board members make decisions that upset donors, members, or beneficiaries, lawsuits can happen. Even non-profit directors can be held personally liable. This coverage helps protect their time, energy, and personal finances—while allowing them to focus on their mission.
Why D&O Insurance Matters
Running a business or non-profit involves tough decisions. Mistakes can happen. Even well-intentioned choices may lead to legal action. D&O insurance provides a safety net.
It shows your leaders that you support them. It reassures investors and stakeholders. And it protects your organization from costly legal battles.
Without D&O coverage, directors and officers may refuse to serve—or they may resign in fear of personal liability.
Final Thoughts
Whether you’re running a corporation, a startup, or a non-profit, D&O insurance is a must. The right coverage helps your organization grow confidently, even in a complex legal environment.
If you want to protect your leadership team and attract top talent, D&O insurance is the first step. Let Combined Insurance Service LLC help you build a policy that fits your needs. Call 816-847-1911 to speak with a licensed agent today.