When a boardroom decision goes wrong, the company balance sheet isn’t the only thing on the line – it’s the people calling the shots. Directors and officers can find themselves subject to lawsuits for decisions made in good faith or blindsided by claims from shareholders and creditors. Legal bills can be extortionate, while indemnities won’t always hold up under pressure. Fortunately, that’s where Directors’ and Officers’ (D&O) Insurance comes in.
But not all D&O cover works the same way. For boards and executives, the real challenge is knowing which part of the policy will actually respond to a claim – and whether it’s you or your company that’s protected.
Side A, B, and C – what’s the difference?
D&O insurance is built around three distinct ‘sides’ of cover: side A, side B, and side C. Each side is designed to respond to a different kind of scenario, but it can be difficult to understand where one ends and the next begins.
Ultimately, which ‘side’ applies is the difference between who gets paid, how fast, and from whose pocket:
Side A is the personal safety net for directors and officers when the company can’t – or won’t – indemnify them. In the event of a claim, the policy covers the cost of their defence and protects their personal assets.
Side B shields the company’s own balance sheet when it has stepped in to cover those individuals. The company pays the defence costs or settlements first, and Side B then reimburses it – though usually subject to a retention. This ensures the company isn’t left carrying the full financial burden of standing behind its directors.
Side C protects the company itself when it is named in a claim. This is most relevant for securities related actions, where shareholders or regulators pursue the company alongside its directors and officers.
Together, these three sides form the backbone of a D&O programme. For directors and officers, the most immediate concern is what happens when indemnification isn’t available at all. That’s where Side A comes into play – the cover that responds directly to protect individuals when the company cannot.
Side A: when indemnity isn’t an option
Side A cover exists to step in directly for directors and officers when corporate indemnities aren’t available – not because the company doesn’t want to protect them, but because it legally or financially can’t.
This can happen for many reasons. Certain claims may be legally non-indemnifiable, such as those arising from derivative claims, shareholder lawsuits, or specific securities violations. In these scenarios, the company is barred from paying defence costs or settlements on behalf of a director or officer.
Companies may also be financially unable to indemnify – if they are insolvent, in administration, or simply lack the means to fund a defence. In either case, directors and officers can find themselves personally shouldering the cost of their defence.
In short, Side A is the mechanism that ensures individuals aren’t left to liquidate savings or sell assets just to mount a defence. It’s the direct safety net that activates when the company cannot stand behind its people.
Side A Claims Example |
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Issue: A private technology company collapsed into Chapter 7 liquidation after a high-profile fraud. With the business bankrupt, it was legally unable to indemnify its directors and officers. Multiple regulatory and criminal investigations followed, generating millions in non-indemnifiable defence costs – exactly the kind of personal exposure that can wipe out an individual’s assets. |
Result: Because the company had a dedicated Side A protection, those costs were paid directly to the individuals once corporate support was off the table. Even after the first USD 15 million of cover was exhausted, the next layer stepped in with a further USD 5 million. Without Side A, those directors and officers would have been left to fund their own defence in the face of bankruptcy, investigations, and a guilty verdict. |
How directors and officers can minimise risk
No director or officer can eliminate risk entirely. However, there are practical steps that can reduce exposure and strengthen the company’s ability to withstand scrutiny:
Strengthen governance – hold regular, well‑documented board meetings and ensure board members possess the skills and experience required to effectively fulfil their responsibilities.
Maintain compliance – keep abreast of changing regulatory requirements and use audits and training to ensure obligations are being met in practice.
Evidence decision‑making – record the rationale for major decisions, ensuring a clear paper trail if those decisions are challenged at a later stage.
Safeguard financial resilience – stress‑test the company’s financial position under multiple scenarios and closely monitor solvency and liquidity.
Foster a healthy culture – establish and implement clear HR policies, encourage staff to speak up, and act consistently if and when issues arise.
Prepare for crises – have a response plan ready, with communication lines defined and external advisers identified before they are needed
Align insurance with risk – review D&O limits and exclusions regularly, ensuring that cover reflects the company’s profile and that individuals remain protected.
Taken together, these measures can reduce the likelihood of claims and demonstrate that directors and officers are exercising their duties with care.
Introducing Side A DIC
Even with a well-structured D&O programme in place, directors and officers can become exposed in ways that aren’t immediately obvious. In the case of insolvency, policies can become caught up in proceedings – potentially delaying access for individuals. Cover may also be restricted if insurers dispute claims or apply exclusions. Company defence costs may also rapidly deplete the shared limits. In these situations, directors and officers might find themselves without the protection that they expected.
Side A “Difference in Conditions” cover is designed to step in when other protections are tied up, contested, or already exhausted. It’s written with broader terms and responds directly to the individual – ensuring that directors and officers can still access defence funding without delay.
For a deeper look at how Side A DIC operates in practice, read our one-page guide (opens a new window).
For further information, reach out to a member of our team.
