Directors & Officers (D&O) insurance is arguably one of the most complex and misunderstood forms of commercial insurance. Much of that complexity comes from its three distinct coverage “Sides”: Side A, Side B, and Side C. Each side serves a different purpose and responds under different circumstances. For business owners, executives, and board members, understanding these differences is critical. It begins with understanding Side A D&O coverage and the role it plays in leadership liability protection.
Side A coverage protects the personal assets of directors and officers when a company cannot indemnify them for a claim. Many executives and board members assume the organization will always step in during a lawsuit or regulatory matter. In reality, that may not happen. A company may be financially unable to indemnify leadership, or the law may prohibit it. This is where Side A D&O insurance coverage comes into play.
In this first of our three-part series on D&O coverage, we take a deeper dive into Side A D&O coverage.
How a Directors & Officers Policy is Typically Structured
Before focusing on Side A specifically, it’s helpful to understand how a standard D&O policy is organized. Most D&O policies are written with three distinct coverage components, commonly referred to as “Sides.” Each side serves a different purpose and responds under different circumstances.
Side A Coverage
Provides direct protection for individual directors and officers when the company is unable or unwilling to indemnify them for a covered claim. In policy language, this is often referred to as coverage for “Non-Indemnifiable Loss” – loss that the company is either legally prohibited from covering or financially incapable of paying.
Side B Coverage
Reimburses your company when it does indemnify its directors and officers – essentially paying the organization back for defense costs it has advanced or settlements it has funded on behalf of its leaders.
Side C Coverage
This is often called “entity coverage”, protects your company itself – most commonly in the context of securities claims brought directly against the organization.
How Side A Coverage Works in Practice
In practice, understanding Side A D&O coverage means understanding that it exists to protect the individuals, not the company. It is the component of a D&O policy that responds directly to the personal financial exposure of directors and officers when your organization cannot or will not step in to indemnify them.
For example, if your company goes bankrupt, then its assets are typically frozen by a court. When this happens your business literally cannot pay for a founder’s legal defense. In this scenario, Side A drops down to cover the individual’s legal fees, settlement costs, and judgments directly.
Another scenario can involve certain cases where the board of directors, a special committee, or shareholders may determine that indemnification of a specific executive is not appropriate – particularly where alleged misconduct, conflicts of interest, or breaches of fiduciary duty are involved. When this happens and the company declines to indemnify, Side A can kick in.
Further, state laws, regulatory requirements, or a company’s own bylaws may prohibit indemnification of directors and officers in specific circumstances.
Shareholder derivative suits – where shareholders sue on behalf of the company against its own officers – are a common example. Many states restrict or prohibit corporate indemnification in these scenarios. Side A is specifically designed to respond when these legal barriers prevent the company from helping its leaders.
Separately, a well-structured D&O policy carries no retention or deductible for Side A claims. Coverage responds from the first dollar for individual directors and officers.
Additionally, a properly structured D&O policy includes a Priority of Payments provision. This provision determines the order in which the insurer pays when multiple claims arise. It establishes that individual directors and officers always get paid before the company does.
The Shared Limit Issue
While Side A D&O coverage focuses on indemnifying individual directors and officers, shared D&O policy limits can create a potentially serious gap in coverage. This is because in a standard bundled policy, Side A, Side B, and Side C all draw from the same aggregate.
As such, a large corporate-level claim can rapidly exhaust the entire policy limit. When that happens, little or no coverage remains for individual directors and officers.
This is not a theoretical risk. Regulatory investigations, business disputes, and shareholder actions routinely generate enormous defense costs. Executives who believed they had full protection may find themselves personally exposed in a crisis.
One way of solving this concern is by purchasing a separate Side A Difference in Conditions (DIC) policy. However, today’s more sophisticated D&O programs solve this problem directly within the policy itself. They do this through a Non-Indemnifiable Additional Limit of coverage.
This dedicated, separate limit of coverage applies exclusively to Side A. It exists in addition to the main policy aggregate. Corporate claims under Side B and Side C cannot erode it.
For example, a D&O policy with a $1,000,000 primary aggregate and a $1,000,000 Non-Indemnifiable Additional Limit delivers $2,000,000 of Side A protection. The additional layer exists solely for individual directors and officers. No corporate claim can touch it. This structure delivers meaningful Side A protection without the complexity of a separate policy.
What Side A D&O Does Not Cover
A complete understanding of Side A D&O coverage also requires knowing its limitations. Like all insurance products, D&O Side A contains exclusions that affect when it responds.
To begin with, D&O Side A excludes claims arising from intentional fraud or criminal behavior. However, most D&O policies require a final, non-appealable court ruling before applying this exclusion. The carrier may cover defense costs until a court issues a definitive ruling.
Similarly, Side A coverage does not apply where a director or officer gained illegal personal profit. A final, non-appealable adjudication typically must establish this before the exclusion takes effect.
Additionally, claims known or pending before the policy’s effective date are typically not covered under D&O Side A. This makes proactive coverage placement before a claim arises absolutely essential.
Furthermore, D&O Side A coverage is not intended to cover physical injury or property damage claims, or employment practices claims. Other commercial lines of insurance address those exposures directly, like General Liability and Employment Practices Liability insurance.
As a sidenote, some D&O policies will package Employment Practices Liability (EPL) coverage within the D&O policy. However, as a general rule, EPL coverage is excluded from a typical D&O policy.
Side A Coverage Matters for Private Companies Too
One of the biggest misconceptions in the marketplace is that D&O coverage is mainly a concern for public companies. Fully understanding Side A D&O coverage means recognizing that it applies across a much wider range of organizations, not just to large publicly traded companies.
Private companies can face serious management liability exposure from investors, lenders, employees, regulators, competitors, creditors, and business partners. Many private companies also have multiple owners, outside advisors, or board members whose decisions can later be challenged.
For closely held companies, the stakes feel even more personal. The very people steering the strategy, signing deals, raising funds, and overseeing growth are often the ones who end up in the spotlight if something goes wrong.
Building The Right D&O Program for Your Organization
Understanding Side A D&O coverage is a strong starting point. Translating that knowledge into the right program requires a deeper analysis of your organization’s specific risks.
At BR Risk Group™ Specialty Insurance, Management Liability is a core focus. We work with top-rated regional and national carriers, specialty Wholesale Brokers, and Managing General Agents to design D&O programs with the features that matter most for your business. This includes built-in Side A enhancements, zero individual retentions, and priority of payment provisions.
Whether you lead a private company, a nonprofit, or an established organization, we can help. We evaluate your existing program, identify gaps in your Side A protection, and build a solution tailored to your specific risk and leadership structure.
Disclaimer: This content is for informational purposes only and should not be considered as legal or financial advice. Coverage varies by carrier and form; always review your specific policy and endorsements.