Directors and officers (D&O) insurance is a policy that provides protection to Directors, Officers and Employees of a company from claims which may arise due to actual or alleged breach of duty in their managerial capacity. The policy covers the legal fees and other costs the organization may incur in defending such individuals against lawsuits.
The policy framework includes coverage as per below:
Side A: Side A coverage covers directors, officers and employees for claims where their organization refuses to or is financially unable to cover them.
Side B: Side B coverage provides protection on behalf of the organization for losses that are indemnified resulting from a claim against the directors, officers and employees.
Side C: Side C coverage pays on behalf of the organisation a loss that results from a claim against the company.
Understanding Side A DIC coverage
Side A DIC coverage can be triggered in the following circumstances:
- The organisation becomes bankrupt
- The organisation is prohibited from indemnifying its directors, officers and employees
- Criminal acts committed by directors, officers and employees
- Regulatory investigations against above mentioned insured persons
Traditional D&O policies already have a Side A cover but a separate Side A DIC policy provides excess limit coverage. It provides broader coverages for losses and damages. It includes cover for investigations at the informal stage, pre claim enquiries, penalties against insured persons and costs incurred for producing documents. The policy can provide automatic coverage to directors and officers of subsidiary companies.
The policy also provides an absolute carve back for defence costs within the fraud/conduct exclusion. Most of the traditional D&O policies recover the defense costs from individual directors and officers following a court order proving them guilt. However the Side A DIC policies do not attempt to recoup such costs. This further strengthens the directors and officers in cases involving allegations of intentional acts.
The Side A DIC policy does not sit on the risk of exhaustion by corporate reimbursement claims. this policy always ensures a pool of funds is available for director and officers for their personal assets that concern them the most.
Hence it is very important to have a well drafted D&O program in place which includes cover for the Side A DIC policy to protect directors and officers in this increasingly complex legal environment in which they operate. A well structured program is also critical to attract top managerial talent considering the gravity of the risks involved.
