Directors' and officers' insurance is coverage against suits for wrongful acts by directors and officers. Lawsuits can be brought by stockholders, investors, employees, and other stakeholders who have been harmed by decisions and actions made by the leadership of an organization.
Directors are personally liable for damages their decisions cause. The by-laws of most organizations recognize this liability and protect directors with an agreement to indemnify any loss - the organization reimburses the losses of a director using its assets.
Some D&O policies refer to Sides A, B, and C coverage.
Side A insures the directors and officers directly for events that are not indemnified by the organization.
Side B reimburses the organization for the losses of directors and officers which are indemnified.
Side C protects the organization for suits brought against the organization.
So, if a director is sued and an award is made, the organization reimburses the director. The Side B coverage of the D&O policy reimburses the organization. (Some policies pay the director directly or pay the expenses directly.)
In some situations a director is not indemnified - either because of a law preventing such reimbursement (derivative actions for example) or because the organization is insolvent and has no assets. That's where side A comes in.
Side C protects the organization from direct suits.
A key issue is how the limits of insurance are allocated. Do suits against the organization (Side C) reduce limits available to pay directors? Can non-director suits use up the insurance available to directors?
Ask your insurance advisor.
Directors are personally liable for damages their decisions cause. The by-laws of most organizations recognize this liability and protect directors with an agreement to indemnify any loss - the organization reimburses the losses of a director using its assets.
Some D&O policies refer to Sides A, B, and C coverage.
Side A insures the directors and officers directly for events that are not indemnified by the organization.
Side B reimburses the organization for the losses of directors and officers which are indemnified.
Side C protects the organization for suits brought against the organization.
So, if a director is sued and an award is made, the organization reimburses the director. The Side B coverage of the D&O policy reimburses the organization. (Some policies pay the director directly or pay the expenses directly.)
In some situations a director is not indemnified - either because of a law preventing such reimbursement (derivative actions for example) or because the organization is insolvent and has no assets. That's where side A comes in.
Side C protects the organization from direct suits.
A key issue is how the limits of insurance are allocated. Do suits against the organization (Side C) reduce limits available to pay directors? Can non-director suits use up the insurance available to directors?
Ask your insurance advisor.
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