The ABC’s of D&O Insuring Agreements Explained
All businesses are vulnerable to lawsuits, and D&O insurance can help protect business directors and officers from personal losses if they are sued as a result of their work at a company. Understanding how D&O insuring agreements work can help you learn how this type of coverage can protect your business and its managers against common claims.
D&O insurance can cover legal fees and other expenses that result from such a lawsuit, making it an important consideration for any business manager.
Here’s everything you need to know about D&O insuring agreements.
What is D&O Insurance?
Directors and officers (D&O) liability insurance offers coverage against lawsuits for any director of a for-profit or nonprofit organization. For a full rundown of what is D&O insurance, you can read our blog here.
D&O insurance primarily protects the individual against personal losses resulting from a lawsuit, but can also reimburse the business itself for any legal fees it may incur while defending the person targeted by the lawsuit.
D&O insurance is often considered an essential aspect of risk management, as it helps protect company managers from claims made against them while acting within the scope of their regular job duties.
This type of insurance typically applies to past, current, and future directors at the company. D&O insurance usually operates on a claims-made basis, meaning claims are only covered if they are made while the policy is active.
What Does D&O Insurance Cover?
D&O insurance usually covers legal fees, court settlements, and other losses when a company manager is sued.
Claimants may file a lawsuit against a company manager when they feel the manager has failed to perform their role. Common allegations covered by D&O insurance may include employment malpractice, failure to comply with regulations, reporting errors, and breaches of fiduciary duty.
D&O insurance does not cover cases of fraud, criminal activity, and lawsuits against managers filed by other managers within the same company.
The ABC’s of D&O Insurance
D&O insuring agreements can vary from policy to policy, but most follow a similar format that makes it easy to compare policies and find the right one for your business.
Most D&O insurance policies include three insuring agreements that are typically referred to as Side A, Side B, and Side C — each of which describes the coverages provided by the policy.
Side A coverage refers to the liability coverage offered by D&O insurance. This coverage protects directors and officers against losses that the company will not or cannot indemnify.
Side A coverage insures the individual director or officer and protects their personal assets if the company does not pay for their defense costs.
Side B coverage, also referred to as corporate reimbursement coverage, reimburses organizations when they do grant indemnification.
This means when organizations cover legal fees and settlements on behalf of the director or officer being sued, their D&O insurance policy will reimburse the company and protect its assets. This coverage is often considered essential, as legal costs and settlements can be very financially damaging, even for large organizations.
Side C, also known as entry coverage, extends D&O insurance coverage for the corporate entity itself.
Side C coverage insures organizations for claims made directly against the company by providing coverage for defense costs and entity assets.
For public companies, Side C coverage is often limited to securities claims, but for private companies, Side C coverage can apply to a wide range of claims against the organization resulting from directors or officers failing to perform their roles.
How Much Does D&O Insurance Cost?
The cost of D&O insurance can vary significantly depending on several factors, including:
- Company size
- Financial circumstances
- Claims history
- Company age
In general, companies with longer operating histories and stronger financial circumstances will likely pay less for D&O insurance due to the lower risk of bankruptcy. To find a policy that offers comprehensive protection while meeting your financial needs, reach out to KSA insurance today.
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D&O insurance provides essential coverages for business managers and can protect them against significant personal financial losses. Together, Sides A, B, and C work to protect managers and businesses against significant financial damages.
At KSA Insurance, we work with businesses in South Carolina and across the southeastern United States to help them find comprehensive D&O insurance policies that protect them and their managers against lawsuits.
Contact us today to request a quote and learn more about D&O insuring agreements.