Director’s and Officers Liability Coverage Part Two

Let’s continue our discussion of Director’s and Officer’s Liability Coverage issues from earlier today.

What are the coverage concerns?

D&O policies typically contain three coverage parts: “Side A”, which protects officers and directors when the company does not indemnify them; “Side B”, which reimburses the company when it does indemnify the officers and directors; and “Side C”, which covers claims against the company itself.

Pay attention to the coverage because company or corporate insiders’ interests don’t always coincide with directors and officers interests. That is what happened to five former directors of a defunct company where they were put in the position of having to pay $41.5 million of their own money to settle a lawsuit stemming from a companies bankruptcy.

To avoid this possibility, directors should demand a “Side A” policy of their own. This option has been very popular of late. These types of policies are also referred to as independent director liability or IDL policy; it can’t be exhausted by claims against the company or the officers.