Directors and Officers Liability Insurance (D&O) provides coverage for the legal defense costs, settlements, and judgments associated with claims made against directors and officers of a company for alleged wrongful acts in the course of their duties. D&O insurance is crucial for protecting the personal assets of directors and officers and attracting qualified individuals to serve on the board. Here are some key coverages to consider when purchasing D&O insurance:
- Side A Coverage: Side A coverage is designed to protect individual directors and officers when the company is unable or unwilling to indemnify them. It provides coverage for defense costs and damages when directors and officers are sued personally and are not entitled to indemnification.
- Side B Coverage: Side B coverage, also known as corporate reimbursement coverage, reimburses the organization for indemnifying directors and officers in covered claims. It covers the organization’s expenses incurred when indemnifying its directors and officers, including legal defense costs, settlements, and judgments.
- Side C Coverage: Side C coverage, also known as entity coverage, provides coverage for claims made against the company itself. It protects the organization from lawsuits related to securities violations, shareholder derivative actions, and other claims alleging wrongful acts by the company. This coverage is typically applicable when the company is named as a co-defendant in a lawsuit.
- Entity Securities Coverage: This coverage specifically focuses on claims related to securities violations, such as misleading statements in prospectuses, financial reports, or other securities filings. It helps protect the organization and its directors and officers against securities claims brought by shareholders, regulators, or other parties.
- Employment Practices Liability (EPL) Coverage: Some D&O policies may offer an optional endorsement for EPL coverage. This coverage extends the policy to include defense costs and damages related to employment-related claims, such as wrongful termination, discrimination, harassment, or retaliation. It can provide an added layer of protection for directors and officers and the organization against employee-related lawsuits.
- Non-Profit D&O Coverage: Non-profit organizations have unique exposures, and D&O policies tailored for non-profits provide coverage for claims specific to their operations, including board governance issues, fundraising activities, and management of volunteers.