D&O Insurance 101
Understanding the 3 Layers of D&O Coverage

You might be surprised to learn that Directors and Officers Insurance has not one, not two, but three whole layers — as many as lasagna! But the difference between getting D&O Insurance and finishing off a plate of your grandma’s country-style, homemade lasagna is that you might not really want all three layers. Or you may want all of them at once. The important thing is that you should know what you’re getting.

Grandma’s recipe might be an old family secret, but insurance shouldn’t be. That’s why we’re here to help you understand the sides of D&O coverage.

A Brief Overview of D&O Coverage

First, let’s recap what Directors and Officers Insurance can do…

  • When a person becomes a director or officer on a board, they may be personally liable in a number of situations, leaving their personal assets vulnerable.
  • For-profit and nonprofit corporations often buy D&O to offer protection for their board members if they are sued over decisions they make on behalf of the organization.
  • D&O coverage can act as a financial shield for these board members so that they can make the hard, day-to-day decisions that come with running a corporation.

If this is all new to you, see our article "Why Your Board Might Demand You Carry D&O Insurance" to get up to speed.

The Types or "Sides" of D&O Coverage

Directors and Officers Insurance offers protection for multiple individuals on behalf of a separate entity (usually the corporation). This means that there are a few different ways the coverage can work. The different types of coverage are called "sides" and can be paired in different ways to provide a D&O package for a business or nonprofit.

A D&O policy can have the following three sides or layers:

  • Side A: This directly covers directors, officers, and employees. For example, if a board member is sued, the policy may provide coverage for defense costs, settlement fees, or judgments for that individual. This is usually if the corporation can’t indemnify them.
  • Side B: This indirectly covers directors and officers by compensating the company or organization for claims paid on the board member’s behalf. For example, if a board member is sued and the nonprofit covers all legal expenses for that member, side B coverage may compensate the nonprofit for those expenses.
  • Side C: Known as "entity coverage," this covers the corporation in its own right, sometimes against securities litigation or other claims not covered by General Liability Insurance. For example, if the nonprofit corporation itself is sued in addition to a board member for certain claims, side C may cover the nonprofit’s own legal costs.

You may decide to get all three of these sides or only one or two as part of your D&O policy. It may depend on what your nonprofit does and the wishes of your board members.

To give you some context, according to a survey by Towers Watson New browser window icon.

  • 6 percent of nonprofits with D&O coverage get side A only.
  • 20 percent get side A and B only.
  • 60 percent get sides A, B, and C.
  • 14 percent aren’t sure or get other coverage.

For more information on whether you should insure your directors and officers, check out our article "When Does a Nonprofit Need D&O Insurance?"

Got D&O Questions?

Your insurance agent can help you better understand your risks and coverage options. Be sure to ask them any questions you may have so you can get the proper protection for your nonprofit. Come to think of it, maybe you should get that lasagna recipe from grandma, too. Cooking for your board members is always a surefire way to please them.

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