Side A, B, and C Coverage: D&O Insurance Structure Explained

Your broker presents two D&O quotes. Quote A: £8,500 annual premium, £5 million limit. Quote B: £7,200 annual premium, £5 million limit. Both look similar on the surface.

The critical difference buried in policy wordings: Quote A provides Side A coverage independent of company solvency with priority of payments ensuring Side A availability even if the company’s indemnity exhausts the limit. Quote B has integrated Side A and B coverage with no priority provisions—if the company indemnifies directors and exhausts the limit, Side A is gone.

You choose Quote B to save £1,300. Two years later, the company faces insolvency and directors face wrongful trading claims. The company can’t indemnify (it’s insolvent), but Side A coverage has already been exhausted by claims where the company did indemnify directors. Directors are personally exposed with no remaining coverage.

Understanding D&O coverage layers UK—Side A, B, and C—determines whether your policy actually protects directors when they need it most or creates illusory coverage that fails at critical moments.

This article explains the three D&O policy structure layers, how they interact, when each applies, and the technical policy provisions that determine whether coverage is meaningful or cosmetic.

Side A Coverage: Non-Indemnifiable Loss Protection

Side A is the most critical coverage layer for directors. It pays claims against directors personally when the company can’t or won’t indemnify them.

When Side A coverage applies:

Company is insolvent. The most common and important trigger. When companies enter administration or liquidation, they can’t indemnify directors—there are no funds and insolvency law may prohibit indemnification.

Directors facing wrongful trading claims, breach of duty allegations, or regulatory investigations need protection, but the insolvent company can’t provide it. Side A pays directly to directors.

Law prohibits indemnification. UK company law and articles of association allow companies to indemnify directors for most liabilities but prohibit indemnification for certain acts (criminal fines, regulatory penalties determined to be uninsurable, deliberate breaches).

When indemnification is legally prohibited but directors still need defence, Side A provides coverage.

Company refuses to indemnify. If conflicts of interest arise between company and directors—for example, directors are sued by the company or shareholders on behalf of the company—the company may refuse indemnification.

Side A coverage protects directors when the company won’t indemnify due to these conflicts.

Indemnity is uncollectable. The company may agree to indemnify but lack financial means. If the company has insufficient funds to honor indemnification obligations, Side A provides the protection.

The critical Side A provisions to verify:

Independence from company solvency. The policy must explicitly state that Side A coverage is available regardless of company financial condition. Without this, insurers might argue that company insolvency affects all coverage, not just the company’s ability to pay.

Wording example: “Side A coverage shall be available to Insured Persons even if the Company is insolvent, in receivership, administration or liquidation, or if the Company’s ability to indemnify is otherwise limited.”

Priority of payments (or “advancing of Side A coverage”). If claims arise where both the company (Side B) and directors (Side A) need coverage, who gets paid first?

Better policies include priority provisions ensuring Side A coverage is available even if Side B exhausts the limit. Without priority provisions, if the company indemnifies directors and exhausts the £5 million limit on those indemnities, no Side A remains if directors later face non-indemnifiable claims.

Wording example: “The Insurer shall advance coverage under Side A even if Side B coverage has exhausted the Limit of Liability, up to the remaining Side A Limit.”

According to research from the Association of British Insurers, approximately 30% of D&O claims involve circumstances where Side A coverage is essential because company indemnification is unavailable—with insolvency being the most common trigger representing 65% of these situations—demonstrating that Side A isn’t theoretical protection but practically essential coverage.

Side B Coverage: Company Reimbursement for Indemnification

Side B reimburses the company when it indemnifies directors and officers for covered claims. This protects the company’s balance sheet from the cost of defending and indemnifying directors.

When Side B coverage applies:

Company indemnifies directors under articles of association. Most UK companies’ articles permit or require indemnification of directors for defence costs and liability (excluding fraud, criminal conduct, and certain regulatory penalties).

When the company indemnifies directors, it pays their legal costs and settlements. Side B reimburses the company for these payments.

Directors incur defence costs and settlements. Directors face claims, incur legal fees, and potentially settle or face judgements. The company pays these on directors’ behalf per indemnification provisions.

Company seeks reimbursement from insurer. The company submits claims to the D&O insurer for reimbursement of indemnification payments made to directors.

How Side B protects the company:

Without Side B coverage, the company absorbs all costs of defending directors—potentially hundreds of thousands in legal fees plus settlement amounts. This drains cash that should fund operations.

Side B transfers this liability to insurers, preserving company capital for business purposes rather than governance defence costs.

Example: Three directors face shareholder derivative action. Defence costs: £180,000. Settlement: £400,000. Total: £580,000.

The company indemnifies all three directors per articles of association. The company pays £580,000 to solicitors and in settlement. The D&O insurer reimburses the company £580,000 under Side B (less any policy excess).

Net result: Directors are protected, company’s balance sheet is protected, insurer bears the cost.

Side B and Side A interaction:

Most D&O policies have integrated Side A and B coverage with shared limits. The £5 million limit applies to both Side A (direct payments to directors) and Side B (reimbursement to company).

If Side B claims consume £4 million of the £5 million limit, only £1 million remains for Side A. This is why priority of payments provisions matter—they ensure Side A remains available even if Side B exhausts the integrated limit.

For private companies: Side A and B are the critical coverage layers. Side C (entity coverage) is typically minimal or excluded unless the company has public shareholders or is preparing for IPO.

Side C Coverage: Entity Coverage for Securities Claims

Side C covers the company itself (not just directors) for specific types of claims—primarily securities claims and shareholder litigation.

When Side C coverage applies:

Shareholder securities claims. Public shareholders sue the company (plus directors) alleging misrepresentation in offering documents, misleading financial statements, or failure to disclose material information.

Side C covers the company’s liability and defence costs. Side A and B cover the directors.

Class action securities litigation. Multiple shareholders bring coordinated claims against the company and directors for securities violations.

Side C provides entity coverage alongside director protection under Side A/B.

Regulatory investigations of company disclosures. FCA or other regulators investigate the company’s public statements, prospectuses, or financial disclosures.

Side C covers the company’s defence costs and potentially regulatory penalties (depending on policy wording and insurability).

Who needs Side C coverage:

Public companies and PLCs. Essential coverage. Securities claims are material exposure for public companies, and Side C provides entity-level protection.

Companies preparing for IPO. Arrange Side C coverage before IPO—securities claims can arise from IPO process itself (prospectus misrepresentations, disclosure failures).

Companies with public shareholders (even if not fully public). Equity crowdfunding, public bond issuances, or other public capital raising creates securities claims exposure.

Private companies generally don’t need Side C. Most D&O policies for private companies have minimal or zero Side C coverage—it’s not relevant until the company has public shareholders.

Side C limits and structure:

Side C typically shares the overall policy limit with Side A and B. If the policy has £10 million total limit, all three sides share that £10 million.

Some policies have separate Side C sublimits—for example, £10 million for Side A/B, plus £5 million additional for Side C.

Integrated vs Separate Limits: Technical Policy Structures

D&O policies structure Side A, B, and C limits in different ways, creating material coverage differences.

Integrated limit structure (most common for private companies):

One limit shared across all three sides. Example: £5 million total limit applies to Side A, B, and C combined.

If Side B claims consume £3 million, £2 million remains for Side A and C.

Advantages: Simpler structure, lower premium, appropriate for private companies where Side C exposure is minimal.

Disadvantages: Side B can exhaust limit, leaving no Side A protection—critical for insolvency scenarios.

Separate Side A limit (better protection):

Side A has dedicated limit separate from (or in addition to) Side B/C.

Example: £5 million Side A limit, plus £5 million Side B/C limit (total £10 million across both layers).

Advantages: Guarantees Side A availability even if Side B/C exhausts its limit. Essential for companies at insolvency risk or with complex governance.

Disadvantages: Higher premium (often 30-50% more than integrated structure).

Priority of payments or “advancing” provisions:

Even with integrated limits, policies can include provisions ensuring Side A priority.

Example: Integrated £5 million limit, but policy states “Side A coverage shall advance even if Side B claims exhaust the limit, up to the Limit of Liability.”

This effectively creates Side A priority without separate limits—if Side B uses £4 million, Side A can still access the full £5 million if needed (though total payout across both is still capped).

Which structure is appropriate:

Early-stage private companies: Integrated limit is cost-effective if priority provisions exist.

Growth-stage companies with insolvency risk: Separate Side A limit or strong priority provisions essential.

Public companies or pre-IPO: Separate limits often required by underwriters and investors.

Policy Wording: What to Look For

The difference between meaningful and illusory coverage lies in specific policy wording provisions.

Side A independence language:

✅ Good wording: “Side A coverage is independent of the Company’s ability to indemnify and shall be available even if the Company is insolvent or unable to provide indemnification.”

❌ Weak wording: “Side A covers non-indemnifiable loss.” (Doesn’t explicitly address independence from company solvency.)

Priority of payments provisions:

✅ Good wording: “The Insurer shall first satisfy coverage obligations under Side A before applying coverage to Side B claims, up to the Limit of Liability.”

❌ Weak wording: Silent on priority. (First-come-first-served application exhausts limit.)

Excess/retention application:

✅ Good wording: “Retention shall apply separately to Side A claims, Side B claims, and Side C claims.”

❌ Weak wording: “Retention applies per claim.” (Could mean retention applies multiple times for the same underlying event.)

Definition of “non-indemnifiable loss”:

✅ Good wording: Includes specific examples—insolvency, legal prohibition, company refusal, uncollectable indemnity.

❌ Weak wording: Vague language without specific triggers.

According to Marsh’s 2023 D&O insurance survey, approximately 60% of UK private company D&O policies include some form of Side A priority provision, but only 35% have fully independent Side A limits—demonstrating that while awareness of Side A importance is high, many companies still operate with integrated structures that could leave directors exposed in insolvency scenarios.

Practical Implications: Why Structure Matters

The coverage layer structure determines whether D&O protection is real or illusory in the scenarios directors most need it.

Scenario: Company insolvency with multiple claims.

Company enters administration with £2 million in creditor liabilities. Pre-insolvency, directors faced shareholder derivative action that the company indemnified (Side B claim: £1.2 million).

Post-insolvency, liquidators pursue directors for wrongful trading (Side A claim needed: £600,000).

Policy A (integrated limit, no priority): £2 million total limit. Side B claim consumed £1.2 million pre-insolvency. Only £800,000 remains for Side A. Covers wrongful trading claim but directors are exposed if additional claims arise.

Policy B (integrated limit with priority): £2 million total limit with Side A priority. Side A access full £2 million even though Side B used £1.2 million. Total insurer payout capped at £2 million, but Side A is protected.

Policy C (separate Side A limit): £2 million Side A limit, £2 million Side B limit. Side B used its £2 million for derivative action. Side A has full £2 million available for wrongful trading. Directors fully protected.

The premium difference between Policies A and C might be £2,000-£3,000 annually—modest compared to the protection difference.

The Bottom Line

D&O Side A coverage protects directors personally when companies can’t indemnify (insolvency, legal prohibition, company refusal)—the most critical layer for director protection. Side B reimburses companies when they indemnify directors—protecting company balance sheets. Side C covers companies themselves for securities claims—primarily relevant for public companies.

The critical technical provisions: Side A independence from company solvency (explicitly stated), priority of payments ensuring Side A availability even if Side B exhausts limits, and clear definition of non-indemnifiable loss triggers.

For private companies, focus on Side A and B. Ensure Side A independence is explicit and priority provisions exist (or arrange separate Side A limits for maximum protection). Side C can be minimal unless approaching IPO or having public shareholders.

For companies at insolvency risk (high burn, tight runway, struggling performance), separate Side A limits or ironclad priority provisions are essential—integrated limits without priority leave directors personally exposed in precisely the scenario Side A exists to address.

The premium difference between basic integrated coverage and proper Side A protection is typically £2,000-£5,000 annually for mid-market companies—trivial compared to the potential personal liability exposure (£500,000-£2 million+) directors face in wrongful trading or insolvency-related claims.

Read your policy wording. Don’t rely on broker summaries or schedules. Verify Side A independence language, check for priority provisions, understand whether limits are integrated or separate. The structure determines whether your D&O insurance actually protects directors or provides false comfort that evaporates when you need it most.

External Resource

Association of British Insurers (ABI) – D&O Coverage Research. https://www.abi.org.uk/data-and-resources/. UK insurance industry trade body, publishes authoritative research on insurance claims and coverage patterns.

Marsh – D&O Insurance Survey UK. https://www.marsh.com/uk/insights/research/uk-directors-officers-liability-insurance-survey.html. Global insurance broker, conducts annual surveys on D&O insurance market trends and policy structures.

 

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