The following is for information only, and not meant to be legal advice.
Directors' and officers' (D & O) liability insurance usually have three insuring agreements: Side A, Side B, Side C. Side A applies when a company cannot indemnify directors for claims against them.
A company cannot indemnify if it is not solvent, or when indemnity is prohibited by law. In these cases, a director or officer would look to Side A coverage. A stand alone Side A policy can never be used to cover claims against the company or to reimburse the company for costs relating to indemnity obligations. There is less risk that the policy limit is exhausted to pay claims against the company.
Side A protects an officer's or director's personal assets. Side A is not limited to claims brought by shareholders. It is subject to exclusions, but covers claims based on acts committed by officers and directors in the capacities of the offices.
Just because a company's balance sheet looks healthy does not mean that it will stay that way. Shareholder suits have proven to rapidly take away a company's fortunes.
In bankruptcy, a bankruptcy trustee may freeze the D & O policy, claiming the proceeds to be an asset of the estate. A stand alone Side A policy is less subject to claims by a bankruptcy trustee.
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