Separate excess policy for individuals that can drop down if the main D&O is rescinded or not collectible; often non‑rescindable for innocent insureds.
Board members and executives make tough calls every day. D&O insurance helps protect personal assets and the organization from claims alleging wrongful acts in management.
D&O is not the same as CGL, EPL, or Cyber; it works alongside them.
| Coverage Part | Protects | What it pays | Notes |
|---|---|---|---|
| Side A | Individual directors & officers | Loss when the entity cannot indemnify (insolvency or legal prohibition) | Often non‑rescindable for innocent insureds; consider Side A DIC for extra protection |
| Side B | The entity (reimbursement) | Reimburses the organization for indemnifying insured persons | Subject to corporate indemnification rules and retentions |
| Side C | The entity itself | Public: typically securities claims only; Private/NP: broader entity claims (varies) | Entity coverage shares the same limit-consider separate towers for large publics |
Limits of Liability The policy’s limit of liability is the maximum amount the insurer will pay for covered claims under all applicable Sides (A/B/C). Selecting adequate limits is essential — consider the size of your organization, industry risk, balance sheet, and exposure to regulatory or securities actions.
Retentions (Deductibles) Retentions are the amounts the insured must absorb before the insurer begins to pay. Typically:
Side A (individual protection when the entity cannot indemnify): often has no retention to ensure directors/officers are protected even in financial distress.
Sides B & C (entity reimbursement or entity exposure): usually subject to a retention, which can vary depending on risk, industry, and past claims experience.
An appropriate retention helps balance premium cost and risk sharing.
Defense Costs & Erosion Legal defense and investigative costs often become significant — even when claims are meritless. Policy forms differ in how these costs are treated:
Some D&O policies pay defense costs in addition to the limit, preserving full limit availability for judgments or settlements.
Others have defense costs that erode (reduce) the limit, meaning legal fees consume from the same pool as awards.
You should confirm which treatment your policy uses, since that determines how much protection remains for judgments after legal expenses.
Allocation Among Covered & Uncovered Matters In practice, a claim may involve a mix of covered and excluded allegations. Modern D&O policies often include allocation provisions that direct how costs are divided between insured and non-insured parts, helping maximize coverage for valid claims.
Order of Payments & Priority Provisions Some policies include clauses that control how payments are prioritized among the Sides (A, B, and C). For example, they may require that Side A claims (protection of individuals) are paid first before the insurer applies funds to entity obligations or settlements. This helps protect directors’ personal interests, especially in financial distress or insolvency.
Panel Counsel, Consent to Settle & “Hammer” Clauses
The insurer may propose a panel of defense counsel. Insureds should check if they have freedom to approve or select their own counsel, or if they’re bound to the panel.
Consent to settle clauses determine whether the insurer can unilaterally settle a claim or must obtain insured approval.
“Hammer” clauses allow insurers to reduce or deny coverage if an insured refuses a settlement offer considered reasonable — an important risk to understand and negotiate.
Separate excess policy for individuals that can drop down if the main D&O is rescinded or not collectible; often non‑rescindable for innocent insureds.
Extends coverage for regulatory interviews or books & records requests before a formal claim is made (sublimits apply).
Protects insured persons serving at the request of the entity on outside boards (non‑profits, JVs), excess of that entity's own D&O.
Employment Practices Liability is often excluded from D&O-purchase a dedicated EPL policy; some D&O forms add limited carve‑backs.
Ensures former directors/officers remain protected for acts during their tenure, including after retirement.
Yes-especially under Side A when the organization cannot indemnify. Adequate limits and order of payments help prioritize individuals.
Usually not. Employment Practices Liability (EPL) is generally a separate policy. Some D&O forms provide limited carve‑backs-ask us to review.
Depends on size, industry, balance sheet, leverage, USA exposure, ownership structure, and risk tolerance. We'll benchmark against peers and consider a Side A DIC layer.
Existing D&O typically goes into run‑off for past acts. You'd purchase an ERP/tail for several years and arrange a new policy for the acquiring structure.
Yes-Side A DIC policies can be purchased to protect individuals in addition to the corporate D&O tower.
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