As the downturn continues, more companies are considering Directors & Officers Liability Insurance and those who carry it are carefully reviewing limits and options.

Most D&O policies share a limit of liability among all the coverage lines of the policy, including the entity.

For example:  ‘Company ABC’ has four directors. If they have a $1 million D&O Liability Insurance policy, they share their $1 million limit among the four Directors and Officers, as well as the company itself. Regular D&O will cover the entity and individuals personally. In the event of a claim if all four are sued the $1,000,000 limit is shared amongst them.

This can put the company in a position whereby there isn’t enough limit for the individual Directors and Officers.  It is important for Directors & Officers within an organization to fully educate themselves on the coverage the company is buying. A shortfall in coverage could mean their personal assets are at risk.

This is where ‘SIDE A DIC’ coverage comes in. This is a standalone policy that provides coverage exclusively for the Directors & Officers (not the Entity) when the company cannot indemnify (reimburse.)

For example: if ‘Company ABC’ declares bankruptcy and the money is no longer there to pay employee salaries, employees could turn around and try to sue the company, including  Directors & Officers. In this case, if ‘Side A DIC’ is in place the individual Directors/Officers will have broader coverage with specific limits.

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