Directors & Officers Liability Insurance
This particular coverage is somewhat more complicated than most other types of insurance. It was created to give Directors & Officers of corporations the ability to manage in the absence of fear for personal financial loss. It should be noted that any intentional act illegal or otherwise resulting in financial damage for the corporation is excluded from coverage leaving wrongful acts which include but are not limited to omissions, misstatements and other damaging acts covered under the policy. The policy form should properly define acts that are covered more completely and we recommend that portion be carefully read before purchasing any D&O policy. The “Duty to Defend” is a key component of coverage and is a valuable benefit financially to having such coverage. In most of articles of incorporation, the officers are generally made harmless so the insurance provides a financial remedy to the corporation that they would not otherwise expect to get from an officer guilty of misconduct in the execution of their corporate duties. Underwriters may request a copy of the “Articles of Incorporation” in determining premium calculations as well as the financial condition of the corporation.
Under the “traditional” D&O policy applied to “public companies” (those having securities trading under national securities exchanges, etc.) there are three (3) insuring clauses. These insuring clauses are termed: Side-A or “non-indemnified”, Side-B; or “indemnified”; and Side C; “entity securities coverage”. D&O policies may also provide an additional Side-D clause, which provides for a sublimit for investigative costs coverage related to a shareholder derivative demand. In detail, the coverage clauses provide the following:
Side-A provides coverage to individual directors and officers when not indemnified by the corporation as a result of state law or financial capability of the corporation; however, exclusions may apply if a corporation simply refuses to pay the legal defense/loss of a director or officer, or if a bankruptcy court issues an order preventing such indemnification
Side-B provides coverage for the corporation (organizations) when it indemnifies the directors and officers (corporate reimbursement)
Side-C provides coverage to the corporation (organizations) itself for securities claims brought against it (NOTE: securities claims only coverage applies to publicly traded companies and large private companies; small private companies may be able to obtain broader “entity” coverage)
More extensive coverage can be obtained for individual directors and officers under a Broad Form Side-A DIC (“Difference in Conditions”) policy purchased to not only provide excess Side-A coverage but also fill the gaps in coverage under the traditional policy, respond when the traditional policy does not, protect the individual directors and officers in the face of U.S. Bankruptcy courts deeming the D&O policy part of the bankruptcy estate and otherwise more fully protect the personal assets of individual director and officers.