.svg)
D&O Side A, B, & C Explained: How D&O Policy Coverage Works
Demystify the structural mechanics of a D&O policy. Learn how Side A, Side B, and Side C insuring agreements operate and why they exist.
Three Core Insuring Clauses (Side A, B & C)
The purpose of D&O insurance is to protect individuals who make decisions on behalf of a business. However, the way that protection is delivered depends on whether the company can indemnify its directors, whether the company itself is named in the claim, and whether the policy limit is shared across multiple insured parties.
Directors & Officers (D&O) Insurance is built around three core insuring agreements, commonly referred to as Side A, Side B, and Side C. Together, these determine who is protected and how claims are paid by the insurer. Understanding the ABC structure is important when claims occur, with each side responding to a different scenario.
Side A – Individual Cover
.svg)
This provides personal asset protection for the individual. If the director doesn’t have an indemnification agreement, or when the company is unable or legally prohibited from indemnifying them. This insuring clause means the insurer will directly pay for the defence costs on behalf of the insured person, usually with no excess or deductible to pay.
Side B – Company Reinbursement
If there is an indemnification agreement in place or the company has agreed to pay for the legal defense costs on behalf of the individual. This insuring clause provides the ability for the insurer to reimburse the company for those insured costs and expenses.
Unlike Side A, Side B usually carries an excess or deductible. This is because the company, rather than the individual director, is receiving reimbursement.
Side C – Entity Cover
Side C protects the company itself when the entity is named as a defendant in a covered claim. However, the scope of Side C varies significantly depending on whether the company is privately owned or publicly listed.
For private companies, Side C often operates as Corporate Legal Liability cover. This can protect the company against a range of issues (although cover is usually sub-limited), such as:
- regulatory investigations
- corporate manslaughter
- breach of Health and Safety
- contractual liability
- pollution defence costs
- crisis costs
For publicly listed companies, Side C is usually much narrower. It is typically limited to Securities Entity Coverage, responding to claims arising from securities-related matters such as:
- misstatements
- investor class actions
- market disclosure failures
- regulatory reporting errors
Side A DIC (Difference in Conditions)
For venture-backed, high-growth, regulated, or public companies, a standard ABC policy may not provide sufficient personal asset protection for directors. This is where dedicated Side A Difference in Conditions (DIC) insurance becomes important.
Shared Aggregate Limit
Most standard D&O policies operate on a shared aggregate limit. This means Side A, Side B, and Side C all draw from the same limit. A securities action, regulatory investigation, or shareholder dispute could use most or all of the available insurance. Once the shared limit is exhausted, individual directors may be left exposed precisely when they need protection most.
In these scenarios, directors may discover that the policy they believed protected them personally has already been eroded by company claims.
Side A DIC Solution
Side A DIC insurance is designed to solve this problem. It provides a separate, ring-fenced layer of insurance reserved exclusively for individual directors and officers. Unlike a standard shared ABC limit, Side A DIC does not protect the company.
The “drop-down” feature is especially important. If the underlying insurer fails, refuses to respond, or is unable to pay, the Side A DIC policy may step down to provide protection directly to the individual directors.
Meet the Brokers
.webp)
