Last Updated on October 16, 2026 by Syed Sarim Naqvi
Directors and officers (D&O) insurance is a claims-made liability policy that protects the people who run a company or nonprofit from personal losses if they are sued over management decisions, and it is built from three parts: Side A for individuals, Side B for company reimbursement and Side C for the entity itself. The catch is that all three sides often share one limit, so company claims can use up the money meant for directors, which is why separate Side A cover emerged after the Enron and WorldCom settlements.
Key Takeaways
- D&O policies are typically written on a claims-made basis, so a claim must be first made and reported during the policy period, according to McDermott
- Side A pays individuals when the company cannot or will not indemnify them, Side B reimburses the company, and Side C covers the entity, usually limited to securities claims for public companies
- Side B usually carries a retention or deductible, while Side A does not, per Indemnity
- Ten Enron outside directors agreed to pay $13 million personally in 2005, and WorldCom outside directors agreed to pay $18 million, a deal later thrown out and replaced
- A July 2026 ECGI working paper found just thirteen cases of outside directors paying out of pocket, suggesting the risk is rare but real
What Is D&O Insurance?
Diligent describes D&O insurance as specialized liability cover for current and past directors and officers facing a claim or lawsuit, noting that directors of both for-profit and nonprofit organizations face personal exposure for decisions made in their official roles. McDermott adds that even relatively small companies and nonprofits face claims ranging from alleged fiduciary breaches to claims by suppliers, customers or competitors. A broker’s overview lists securities litigation, allegations of misrepresentation, breach of fiduciary duty and regulatory actions as typical triggers.
How Do Side A, B and C Work?
According to IRMI, Side A protects personal assets when indemnification by the company is not possible, for example because of legal limits or insolvency. Side B reimburses the company when it does pay legal costs, settlements or judgments for its directors and officers. Side C, entity cover, extends protection to the company for claims made directly against it. McDermott notes private companies usually enjoy broader entity cover than public companies, whose entity cover is typically limited to securities claims.
| Side | Who Is Protected | Key Catch |
|---|---|---|
| Side A | Individual directors and officers | Shares the limit with Sides B and C unless a separate Side A policy exists |
| Side B | The company, after indemnifying individuals | Usually carries a retention or deductible |
| Side C | The company as a defendant | Public company cover is often securities claims only |
| Side A DIC | Individuals only, in a separate layer | Does not protect the company; sits above the main policy |
What Happened in Enron and WorldCom?
Business Insurance reported that Enron’s former directors agreed to pay millions of dollars from personal assets, and that 10 outside directors would contribute $13 million of their own funds to settle the lawsuit over the company’s 2002 collapse. CFO reported that 10 former outside directors of WorldCom agreed to pay $54 million, including $18 million out of their own pockets, a deal that was thrown out on a technicality before the directors rejoined the case. An Insurance Journal feature later said the WorldCom directors were required to fund $24.75 million personally and that 10 former Enron directors personally paid a total of $18 million while insurers paid $36 million. The sources differ on the final figures, but all agree the directors paid personally.
Business Insurance said those settlements spawned remarkable growth in stand-alone Side A D&O insurance, which covers executives directly when their companies are legally precluded from indemnifying them or refuse to. Indemnity’s explainer says Side A DIC is a separate, ring-fenced layer for individuals, created because a shared limit can be eroded by company claims.
How Likely Is Out-of-Pocket Liability?
A July 2026 working paper from the European Corporate Governance Institute analyzed the risk empirically and found thirteen instances in which outside directors of public companies made out-of-pocket payments, concluding the risk is rare and that directors with strong insurance face little exposure. Business Insurance, in 2005, quoted insurers and attorneys saying such settlements would likely threaten personal assets only in the most egregious cases. The WorldCom outside directors were not accused of directly participating in fraud, a point the same report highlights.
How Much Does D&O Insurance Cost?
The sources reviewed do not publish reliable current premium figures, so none are given here. Preferred Insurance says the price depends on factors including company revenues and prior legal claims and recommends obtaining several quotes, and Diligent notes costs vary by whether the organization is public, private or nonprofit. A Business Insurance report from a soft-market period said some buyers cut primary rates 20% to 40% at renewal, which shows how much pricing can swing with the market, though it is an older data point.
What Should You Check Before Buying?
- Shared limits: check whether Sides A, B and C draw from one limit, and consider Side A DIC
- Claims-made terms: confirm notice requirements and any retroactive date
- Related companies: McDermott suggests an endorsement or separate policy if related entities are involved
- Retention: understand the Side B deductible
- Non-rescindable terms: Business Insurance notes insurers typically offer that enhancement only for Side A policies
How Does This Connect to Other Business Cover?
D&O sits beside Professional Liability (E&O) Insurance Explained, which covers professional advice errors, and Key Person Insurance Explained, which protects the business from losing a leader. Related management risks appear in Reputational Risk Insurance Explained and Cyber Liability Insurance Explained.
FAQ
What does D&O insurance cover?
Legal defense costs, settlements and judgments from claims against directors and officers over management decisions.
What is Side A?
Cover for individuals when the company cannot or will not indemnify them.
What is Side B?
Reimbursement to the company after it indemnifies directors and officers.
What is Side C?
Entity cover for claims made directly against the company.
Do nonprofits need it?
Diligent says directors of nonprofits face personal exposure too.
What does claims-made mean?
The claim must be made and reported during the policy period.
Did Enron directors pay personally?
Yes. Ten outside directors agreed to pay $13 million in 2005, though later accounts give a higher total.
Glossary
- Indemnification: the company repaying a director’s legal costs or losses.
- Claims-made: a policy covering claims first made during the policy period.
- Retention: the amount the insured pays before the policy responds.
- Side A DIC: difference-in-conditions cover reserved for individuals.
- Non-rescindable: a term preventing the insurer from voiding the policy.
Sources
- Diligent: Directors and Officers Insurance, How to Know If You Need It (Sides A, B, C, nonprofits)
- Indemnity: D&O Side A, B and C Explained (shared limits, Side A DIC, retention)
- McDermott: D&O Insurance, Issues to Consider Before a Claim Arises (claims-made, related companies)
- IRMI: Directors and Officers Liability Insurance (definitions)
- Business Insurance: Directors Focus on Insurance After Costly Settlements (Side A growth)
- Business Insurance: D&O Settlements Get Personal (Enron $13 million)
- CFO: WorldCom Directors Settlement Nixed ($18 million, deal thrown out)
- Insurance Journal: Value Analysis in the Current D&O Market ($24.75 million, $18 million, insurers paid $36 million)
- ECGI Working Paper 949/2026: Outside Director Liability (thirteen out-of-pocket cases)
Related reading: Umbrella Insurance Explained · Film Cast Insurance Explained · Terrorism Insurance Explained
Published October 2026. Prices and plan terms vary by insurer and change often; always read how the limit is shared across Sides A, B and C and the claims-made terms, and refresh this article periodically.
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