Insurance Curator Directors and Officers (D&O) policies are commonly structured with distinct coverages known as Side A, Side B and Side C. Allocating limits across these sides correctly is a critical commercial decision for U.S. companies—especially in high-litigation states like New York, California and Delaware. This guide explains practical allocation strategies, includes concrete pricing context from major carriers, and gives sample allocations and stress-test scenarios to help decision-makers optimize protection and cost.
Quick primer: What are Sides A, B and C?
-
Side A (Individual Directors & Officers)
Protects directors and officers when the company cannot indemnify them (e.g., bankruptcy or indemnification prohibited). Side A responds directly to individuals. -
Side B (Company Reimbursement)
Reimburses the company when it indemnifies directors and officers for covered claims. -
Side C (Company Entity Coverage / Entity Liability / Securities)
Covers the company itself for securities claims or other entity-level exposures (often linked to SEC/SEC-type litigation for public companies).
Why allocation matters (commercial impact)
- Litigation environment varies by location. Companies headquartered in New York or California typically face higher securities litigation frequency and defense costs than counterparts in, say, Texas or the Midwest. Delaware incorporations create additional Chancery Court exposure.
- Allocation affects control of sublimits and exhaustion order. A policy with a single aggregate limit behaves differently than one with specified Side A/B/C sublimits.
- Premiums move with limits and attachments. Increasing Side A limits or adding a Side A difference-in-conditions (DIC) feature has direct premium impact.
Major carriers and brokers (e.g., Chubb, Hiscox, Aon, Marsh) publish market guidance and offer pricing that reflects these patterns. For small private firms, carriers such as Hiscox offer entry-level D&O starting in the low hundreds to low thousands annually for $1M limits; middle-market placements across carriers like Chubb or Travelers commonly run in the tens of thousands to low hundreds of thousands depending on industry and attachment points; large public company towers placed by brokers like Aon/Marsh routinely push premiums into six figures and above. Sources: Hiscox, Chubb, Aon/Marsh.
(See Sources at the end for links.)
Common allocation strategies
Below is a practical summary of allocation approaches used in the U.S. market.
| Strategy | How it works | When to use | Pros | Cons |
|---|---|---|---|---|
| Single Aggregate Limit | One shared pool for A/B/C (no sublimits) | Early-stage startups / low-budget companies | Simpler, cheaper upfront | Risk of Side A exhaustion by entity claims |
| Fixed Sublimits (e.g., A $2M / B $2M / C $1M) | Specific dollar limits per side | Middle-market firms with known exposures | Predictable protections per side | Requires careful forecasting; can be more costly |
| Priority / Non-Overlap Clauses | Clear order of payment when limits are shared | Companies seeking clarity in multi-claim scenarios | Reduces disputes on exhaustion/order | Negotiation friction with carriers |
| Side A DIC or A-Only Policy | Separate Side A policy sits over primary | Where entity indemnification may be impaired (e.g., bankruptcy) | Protects individuals even if entity bankrupt | Additional premium; coordination needed |
| Tower Approach (Layering Excess) | Primary limits then excess layers (A/B/C or A-only layers) | Public companies or high-risk industries | Scalable catastrophe protection | Complexity and higher cost |
Practical steps to determine your allocation
-
Map exposures by claimant and claim type
- Securities class actions → primarily Side C (entity) and Side B (reimbursement).
- Employment practices, fiduciary duty claims → can implicate both Side A and Side B.
- Regulatory investigations → may hit Side A if the individual is the target.
-
Run historical claim and cost analysis
- Use internal loss runs and industry benchmarks. Defense costs in NY/CA can be materially higher—plan a higher Side A and Side C buffer for headquarters in New York City, San Francisco or Los Angeles.
-
Decide primary commercial objective
- Protect individuals (Side A priority) vs. protect company balance sheet (Side C emphasis) vs. ensure reimbursement (Side B). For startups and cash‑strained entities, prioritize Side A.
-
Select policy form and clauses
- Negotiate allocation language, priority of payments and whether limits are shared. Consider a Side A DIC if there’s bankruptcy or special indemnity risk.
-
Price trade-offs
- Get comparative quotes from multiple carriers (e.g., Chubb, Hiscox, Travelers) to see the premium delta between shared vs sublimited structures. Expect tangible premium increases when adding dedicated Side A capacity or raising Side C for public-facing firms.
-
Stress-test
- Model a 1-in-100 claim scenario (e.g., multi-plaintiff securities suit with defense costs $2–5M). Ensure allocations and tower layers survive multiple simultaneous claims.
Sample allocation scenarios (U.S. locations & numbers)
Scenario A — Early-stage California tech startup (San Francisco)
- Company: 50 employees, pre-revenue, high-churn board turnover
- Budget: $10,000/year D&O premium target
- Typical market offering (Hiscox & specialty MGAs): $1M total limit
- Recommended allocation: Single $1M aggregate, or $1M with Side A priority endorsement (if extra $3k–$6k)
- Rationale: Individuals need protection; entity claims lower probability.
Scenario B — Mid-market manufacturing firm in Dallas, Texas
- Company: $200M revenue, private, 1 IPO prospect
- Budget: $50k–$150k premium range
- Recommended allocation: $3M total with sublimits: Side A $1.5M / Side B $1M / Side C $0.5M; excess layer $5M shared
- Rationale: Protect directors while preserving reimbursement capacity; Texas litigation environment relatively moderate.
Scenario C — Public company headquartered in New York (NYSE-listed)
- Company: $800M revenue, active M&A
- Market reality: Primary limit $5M–$10M often insufficient; excess towers necessary; premiums typically $250k+ depending on volatility and claims history
- Recommended allocation: Primary $10M (A/B/C shared) + dedicated Side A $10M DIC layer + excess shared tower up to $100M
- Rationale: Higher securities litigation risk in NY means more Side C and Side A capacity; DIC protects officers if entity indemnification blocked.
Note: The ranges above reflect common market practice across carriers including Hiscox, Chubb, and placements facilitated by brokers such as Aon and Marsh. Premiums vary by industry, claims history and retentions.
Negotiation and renewal tips (U.S. market focus)
- Shop broader than local agents—use national brokers with access to admitted and surplus markets (Aon, Marsh, Willis Towers Watson).
- If headquartered in high-litigation states (NY, CA) prioritize Side A protection; consider a Side A DIC with carriers experienced in U.S. securities exposures.
- Use retention structure strategically—higher retention reduces premium but increases company cash exposure; tie this to your balance sheet and captive strategy.
- For public companies, build an excess tower and price-test market appetite for separate Side A layers versus shared layers.
- Review allocation clauses annually with counsel and broker before renewal. See Renewal Negotiation Tips: Increasing Limits without Doubling Directors and Officers (D&O) Liability Insurance Premiums for negotiation tactics.
Checklist before finalizing allocation
- Have you mapped likely claim types and probable defense costs for your state (NY/CA/DE vs TX/Midwest)?
- Does the allocation protect individuals if the company cannot indemnify?
- Do you need a Side A DIC or A-only excess layer?
- Have you obtained multiple quotes from carriers like Chubb, Hiscox and market brokers (Aon/Marsh)?
- Have you stress-tested a worst-case multi-claim exhaustion scenario?
Recommended reading (internal links to related guides)
- Choosing the Right Limits for Directors and Officers (D&O) Liability Insurance: A Practical Guide
- Deductible vs Retention: Structuring Your Directors and Officers (D&O) Liability Insurance Attachment to Optimize Cost
- Allocation Clauses and Multiple Claimants: How Payments Are Divided Under Directors and Officers (D&O) Liability Insurance
Sources and further reading
- Hiscox: Directors and Officers Insurance — product info and small business pricing examples (U.S.)
https://www.hiscox.com/small-business-insurance/directors-and-officers-insurance - Chubb: Directors & Officers Liability Insurance (product overview and commercial market commentary)
https://www.chubb.com/us-en/business-insurance/directors-and-officers-liability-insurance.aspx - Aon: D&O insights and market commentary from a major U.S. broker (market trends and placement strategies)
https://www.aon.com/risk-solutions/d-and-o.jsp - Marsh: Directors and Officers Liability Insurance guidance and industry market updates
https://www.marsh.com/us/industries/financial-services/directors-and-officers-liability-insurance.html
If you want, I can build sample allocation models for your company (e.g., New York tech startup vs. Texas manufacturing) with estimated premiums and exhaustion scenarios.