Side A Coverage
D&O coverage protecting individual directors and officers when the company cannot or will not indemnify them for covered claims.
What It Is
Side A coverage is the component of a Directors and Officers insurance policy that protects individual directors and officers when the corporation cannot or will not indemnify them for covered claims. This is the 'personal asset protection' layer of D&O insurance and is considered the most critical component because it is the last line of defense for an individual's personal wealth.
Side A responds in situations including: the company is financially unable to indemnify (bankruptcy or insolvency), the company is legally prohibited from indemnifying (certain derivative suits or regulatory proceedings), or the company refuses to indemnify. In these scenarios, the directors' and officers' personal assets, homes, investments, retirement accounts, are directly at risk.
Standalone Side A policies (also called DIC, Difference in Conditions) are often purchased in addition to the standard D&O program. These standalone policies provide a dedicated limit that cannot be eroded by Side B or Side C claims, ensuring that individual directors always have coverage available regardless of what happens to the shared D&O limit.
Why It Matters for Brokers
Side A coverage is what allows qualified professionals to accept board positions. Without it, serving as a director exposes personal assets to potentially unlimited liability. Brokers must ensure that Side A coverage is not just present in the D&O policy but is meaningful, a shared limit that is consumed by entity claims provides little practical protection. Standalone Side A policies are essential for companies with significant exposure. Side B coverage is often the most claims-active portion of a D&O policy because it reimburses the company for indemnifying its directors and officers, making adequate limits essential for companies that indemnify their leadership to the fullest extent permitted by law. Publicly traded companies face significant securities litigation exposure that Side C coverage addresses, and brokers should ensure the D&O limit is adequate to cover both individual director protection and entity-level securities claims without one eroding coverage for the other. Securities class action settlements average millions of dollars, making adequate D&O limits with Side C coverage essential for any publicly traded company, and brokers should benchmark limits against industry peers to ensure appropriate protection.
Real-World Example
A company files for bankruptcy. During the bankruptcy proceeding, creditors sue the former CEO and board members personally for $8.5M, alleging they continued operating while insolvent. The company cannot indemnify the directors, it is bankrupt. The standard D&O policy has a $5M limit shared across all sides, but a $2M Side C claim from a separate securities action has already eroded the limit to $3M. A standalone Side A DIC policy of $5M provides an additional dedicated limit. Combined, the directors have $8M available for their defense and any personal liability.
Common Mistakes
- 1Relying solely on the D&O's shared limit for Side A protection without recognizing that Side B and Side C claims can exhaust the limit before Side A is needed.
- 2Not recommending standalone Side A DIC coverage for companies with bankruptcy risk, securities exposure, or aggressive regulatory environments.
- 3Assuming corporate bylaws requiring indemnification eliminate the need for Side A, bylaws cannot override legal prohibitions on indemnification in certain situations.
How brokerageaudit.com Handles This
brokerageaudit.com's Policy Checker identifies whether D&O policies include Side A coverage and whether standalone Side A DIC policies are in place. The system flags accounts where the shared D&O limit may be inadequate for Side A protection based on the company's financial condition and exposure profile. The platform recommends standalone Side A for companies meeting specific risk criteria.