Director's & Officer's Liability
Generic Explanation of – "Side A Coverage"

W. Meade Collinsworth CPCU, ARM, AIM, AAI

This coverage has become desirable because of evolving legislation and stricter corporate governance standards…. As a result, Directors and Officers face greater personal liability than ever before.  Most of these claims that are covered under a standard Director's and Officer's (D&O) liability insurance policy.  However, this coverage becomes important…if the insured company can't or won't respond because:

• A statute or law prevents the company from indemnifying its Directors and Officers for the particular claim?
• The insured company (that is, the corporate entity) is sued (too) and the limits on the corporate D&O policy are consumed/exhausted by the policy's corporate entity coverage…leaving nothing for the Directors and Officers?
• The insured company fails or refuses in writing to indemnify the Director or Officer …even if it has an obligation to do so and is financially solvent?
• The insured company becomes insolvent and cannot indemnify its Directors and Officers against claims made against them?

As indicated before…with the "Side A" Extension…the Directors and Officers have their own D&O liability insurance.

In addition…generally "Side A" coverages are designed to provide:

• Dedicated limit of liability – that is not shared with the insured corporate entity.
• "White knight" provision – protects the Directors' and Officers' personal assets when the company cannot or has stated in writing that it will not indemnify its Directors and Officers.
• Nonrescindable and noncancelable coverage – Even when misrepresentations are made in the application, The carrier will not rescind coverage for insured persons who did not know the facts that were not truthfully and accurately disclosed in the application.  Additionally, it is noncancelable by the insurer as long as the premium is paid.
• Full severability – Knowledge possessed by any insured person cannot be imputed to any other insured person.
• Excess coverage – This coverage is most often written as excess over standard D&O liability policy.
• The coverage provides comprehensive protection for Directors and Officers – This coverage is broader than most primary policies in the following ways:
• No SEC 16(b) exclusion.
• No pollution exclusion.
• No errors and omissions exclusion.
• No failure to maintain insurance exclusion.
• No libel/slander or defamation exclusion
• Coverage for insiders and outsiders.
• Freedom to choose defense counsel.
• Spousal/domestic partner and estates coverage.
• Broad definition of claim.
• Coverage for employment-related claims.
• Explicit coverage for claims brought by a bankruptcy trustee or a creditors committee.
• Punitive damages are usually covered…where allowed by law.
• Bilateral extended reporting period.
• Quoted policy limits up to $60 million.
• Worldwide coverage.
• Outside directorship liability – Corporate officers or directors are sometimes requested by the company to serve on the board of another organization.

In closing…Side A coverage will also generally provide "difference in conditions" (DIC) type coverage… dropping down and applying its terms in certain circumstances where the primary coverage may fail to respond (such as if the primary policy is rescinded, or the underlying coverage is more restrictive, or the insurer writing the underlying insurance is financially unable to provide the protection they promised.)

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W. Meade Collinsworth, CPCU, ARM, AIM, AAI, is President of Collinsworth Alter Nielson Fowler and Dowling, Inc., a Miami Lakes, Florida insurance agency specializing in insurance for architects, engineers, land surveyors and contractor construction related activities. Mr. Collinsworth is a regular contributor to the Guest Essay column of the a/e ProNet Website.

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This article is intended for general discussion of the subject, and should not be mistaken for legal advice. Readers are cautioned to consult appropriate advisors for advice applicable to their individual circumstances.