Who is covered by D&O insurance?

D&O insurance is an important consideration for most organisations. It can be the difference between successfully defending a claim, and leaving an organisation and its executives in financial ruin. However, as the size and structure of organisations vary, its important to have a clear understanding of who is covered.

Directors and officers

The primary intention of D&O insurance, is to protect directors and officers if they are implicated in a claim. Within a D&O policy, an insurer specifically outlines who is covered through its definition of an “insured person”. Although this definition varies between policies, it is generally constructed to protect anyone who occupies a position of management, or has decision-making capability. This typically includes any past, present, or future:

• Director or corporate officer
• Senior manager, committee member or secretary
• Employee acting in a supervisory capacity

Individuals falling within this definition are covered by the Side-A insuring clause. While organisations often agree to indemnify these individuals from liability, Side-A coverage will step in and protect them if an organisation cannot fulfil its corporate reimbursment obligations.

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An organisation, for indemnification costs

An organisations may also be covered by a D&O policy when it indemnifies its managment from a claim. When protecting executives according to its corporate indemification obligations, an organistaion will often incur legal and claim settlement costs on their behalf.

A D&O policy’s Side-B insuring clause accounts for these situations, by reimbursing an organisation for any expenses incurred while defending directors and officers. Side-B coverage provides an organisation with balance sheet protection, ensuring that its financial health is not significantly effected by claims.

An organisation, for its own liability

As the intention of directors and officers insurance is to protect the assets of individuals, a policy will not generally respond to claims made directly against a company entity. Despite this, D&O can be tailored to cover claims made directly against a company in some circumstances. Entity Securities Coverage, or Side-C, can be elected by public companies to protect an organisation from claims made by investors with respect to the sale, purchase or ownership of the company’s securities.

Another common form of entity coverage is Employment Practices Liability, which covers the company when it is named in an employment related action by disgruntled staff. Even broader entity coverage may be available for companies who purchase Management Liability insurance, a D&O product developed specifically for small and medium businesses.