Directors & Officers Liability Insurance Structure & Types of Claims
Directors & Officers Liability Insurance Structure
D&O as it is typically structured has 3 insuring agreements: A side, B side and C side.
- “A” side indemnifies the directors and officers
- “B” side reimburses the company for its indemnification duty to its directors & officers
- “C” side provides coverage for the entity if it is named in the law suit. (Private companies typically have broader entity coverage under C side than public companies.)
Like most insurance coverages, Directors & Officers Liability insurance started out one way and evolved into something a bit different spurred on by changes in the business community. Initially, D&O was structured to give coverage to just the directors & officers that sit on boards—“A” side coverage.
After some time, businesses stepped up to offer more financial protection to their directors and officers. Indemnification clauses were written into contracts and corporate bylaws prompting the addition of “B” side to the policy.
And once again after a period of time, another corporate initiative commenced a coverage change. Insurance companies noticed that claims were being brought against the entity itself, so “C” side was added.
Types of Claims
Private companies are at risk for a number of D&O claims from customers, vendors, suppliers, competitors, government regulators, partners or shareholders. The top claims in terms of frequency seem to vary from year to year according to different surveys, but the overall list mostly stays intact.
Types of D&O Claims for Private Companies (in alphabetical order):
- Breach of Contract
- Breach of Duty
- Deceptive Trade Practices
- Shareholder / Investor
- Derivative Lawsuit