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Breaking Down a Directors and Officers (D&O) Liability Insurance Policy: Insuring Agreements Explained

Directors and Officers (D&O) liability insurance protects individuals and corporations when management decisions are challenged. For boards and C-suite executives in the United States — particularly in states with active securities and employment litigation such as New York, California and Texas — understanding a D&O policy’s insuring agreements is essential to ensure proper coverage, control costs, and limit personal exposure.

This article breaks down the common D&O insuring agreements (Side A, B and C), what each covers, typical limits and pricing considerations in U.S. markets, and practical negotiation points for policyholders.

What are “insuring agreements” in a D&O policy?

An insuring agreement is the contractual promise in the insurance policy that sets out what the insurer will pay for covered claims. In D&O policies these are commonly split into three “sides”:

  • Side A — Personal Coverage: Pays on behalf of individual directors and officers when the corporate entity cannot indemnify them (e.g., insolvency or legal prohibition).
  • Side B — Corporate Reimbursement: Reimburses the company when it indemnifies its directors and officers for covered loss.
  • Side C — Entity Coverage (often called “Company Side” or “Entity Cover”): Extends coverage to the corporate entity itself for securities claims (common for public companies or private companies with outside investors).

For a deeper explanation of these pillars, see Side A, B & C Explained: The Three Pillars of a Directors and Officers (D&O) Liability Insurance Policy.

How each insuring agreement works — practical examples

Side A (Individual directors & officers)

  • Who benefits: Individual insured persons.
  • When it triggers: The company is unable or prohibited from indemnifying the individual (e.g., bankruptcy, insolvency, or conflict of interest).
  • Why it matters: Protects personal assets and future employability.

Side B (Corporate reimbursement)

  • Who benefits: The company when it indemnifies its insured persons.
  • When it triggers: When the corporation pays settlements, judgments, or defense costs on behalf of directors and officers.
  • Key tension: Some policies limit reimbursement if the claim also implicates the company directly.

Side C (Entity coverage)

  • Who benefits: The organization (especially public companies) when sued directly, often in securities claims.
  • When it triggers: Securities claims, regulatory actions naming the company, derivative suits where entity is a defendant.
  • Exposure note: Side C limits are often the first to be eroded in securities crises.

See also how insurers and courts split costs at claim time in Allocation Clauses in Directors and Officers (D&O) Liability Insurance: How Courts and Policies Split Costs.

Typical cover features and common exclusions

Common inclusions:

  • Defense costs (often advanced subject to cooperation/advancement provisions)
  • Settlements and judgments
  • Crisis response and regulators’ investigations (sometimes via endorsement)

Common exclusions:

  • Fraud and criminal acts (intentional wrongdoing)
  • Prior acts (claims arising from facts known pre-policy)
  • Bodily injury / property damage (general liability covers these)

To understand how defense is handled contractually, review Defense Provisions in Directors and Officers (D&O) Liability Insurance: Duty to Defend vs. Indemnify.

Pricing snapshot — what U.S. buyers can expect (2024 market context)

D&O pricing varies dramatically by company size, public vs private status, industry, claims history, and jurisdiction. The U.S. D&O market hardened in recent years — underwriters tightened terms and increased rates — driven by increased securities litigation and higher defense costs.

Approximate premium ranges (illustrative; actual quotes vary):

  • Micro/small private companies (typical SaaS/tech startups with clean history): $1,000 – $10,000 annually for a $1M/$1M limit package.
  • Middle-market private companies: $10,000 – $50,000+ annually for multi-million dollar limits.
  • Public companies or high-risk sectors: $100,000s to millions annually depending on exposure and limit.

Insurers offering products for these segments include:

Market commentary and trend reporting confirm rate increases and tighter terms: Insurance Journal’s coverage on D&O market changes provides context on pricing pressure and underwriting discipline. https://www.insurancejournal.com/news/national/2023/08/02/737092.htm

Note on geography: companies headquartered in New York or California often face higher D&O costs due to active plaintiff bar and regulatory enforcement; Texas can also be high in certain industries (energy, healthcare), though venue and case mix influence price. Local counsel, corporate governance practices, and prior claim history materially affect these ranges.

Practical negotiation points for policyholders

Quick comparison table: Typical D&O structure and when each is used

Insuring Agreement Who It Protects Typical Use Case Pricing Sensitivity
Side A Individual directors & officers Bankruptcy, inability to indemnify Highly sensitive for startups and insolvent companies
Side B Company (reimbursing indemnification) Company indemnifies execs Medium sensitivity; influenced by indemnification practices
Side C Corporate entity Securities suits, ERISA, regulatory claims High sensitivity for public companies and PE-backed firms

Final checklist before you bind D&O in the U.S.

References

For region-specific pricing and tailored wording (New York, California, Texas), consult a broker experienced in D&O placements — and bring this checklist and policy questions to your renewal negotiation.

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