The protection afforded by D&O policies on the market can vary significantly, however, most follow a common structure. A standardised format means that policies can be easily read, understood, and compared by policyholders and their brokers. Outlined below are the typical components of a D&O policy:
Insuring clauses specify the degree of coverage afforded by a policy. They summerise the promise by the insurer to indemnify the policyholder from losses incurred from an insurable event or circumstance. A standard D&O policy generally has two primary insuring clauses, Side-A and Side-B, with an optional third, Side-C:
Side-A: Directors and officers liability
Directors & officers coverage, commonly known as Side A, protects directors and officers for claims made personally against them, when the company cannot provide indemnity.
Side-B: Company reimbursement
Company reimbursement coverage, often referred to as Side B, reimburses an organisation for expenses incurred in indemnifing its directors and officers from claims made personally against them.
Side-C: Entity securities coverage
Entity securities coverage, or Side C, protects an organisation when a claim is made directly against the entity as a result of the offer, sale or purchase of its securities.
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Extensions to cover
Policy extensions broaden a policy’s coverage out from its standard insuring clauses, providing additional benefit and protection for the policyholder. Many extensions are automatically included, while some such as employment practices liability, are optional.
D&O policies contain a range of exclusions to limit the insurer’s exposure to undesirable claims. The risk of covering a particular event may be too great for an insurer, or against the intention of the policy. For example, an insurer will not cover an executive for deliberate illegal conduct.
Key word definitions
Key terms used within a policy wording are defined to allow clear interpretation of the insurance coverage. Definitions are relied by all parties of an insurance policy to reduce the ambiguity of key terms, and are often highlighted within the policy document for ease of reference.
General policy and claims conditions
Policy conditions outline the intended operation of a insurance contract. They address the parameters of cover, and identify the requirements and claims processes relevant for an policyholder seeking indemnity under the policy.