What is ​Directors and officers liability insurance?

The insurance is closely related to corporate governance, corporations law, and the fiduciary duty owed to shareholders or other beneficiaries. Under the United States business judgment rule, the directors and officers are granted broad discretion in their business activities.

​In the United States, corporate law is typically at the state level; corporations are often domiciled in Delaware (with one estimate at 97% of corporations domiciled in either their home state or Delaware, due to its developed corporate law and tax benefits;.Publicly traded companies are subject to more federal claims, particularly due to the Securities Act of 1933 and the Securities Exchange Act of 1934.

Directors and officers liability insurance Coverages

Under the "traditional" D&O policy applied to "public companies" (those having securities trading under national securities exchanges etc.), there are three  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 to 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 directors and officers.
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5223 Germantown Ave
Philadelphia, PA 19144​
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