D&O: Indemnification and D&O Insurance – Side B Coverage

Indemnification and D&O

Side B coverage in a D&O insurance policy is all about indemnification. It’s purpose is to financially protect the insured organization when it indemnifies its directors and officers for loss due to a claim. Indemnification is the action of indemnifying, of reimbursing or compensating, a party for loss suffered.

Read below and watch the video to learn how the indemnification profess works.

The indemnification process

Indemnification is about financial obligations; about reimbursing defence costs and damages.

The process goes like this:

  1. An allegation of wrongdoing occurs, and a board member is sued. The director goes to the organization and says, “I need to be indemnified for my defence costs and possibly for damages from the suit against me. Please pay as you said you would in my indemnification agreement”.
  2. The organization reimburses the director’s defence and damages costs, while filing a D&O insurance claim saying to the insurance company, “I have to indemnify my corporate director, please cover the costs as per the D&O policy”.
  3. The insurance company then reimburses the organization for the defence and damages costs that the organization just paid to the director (or directly to the legal counsel) who was sued. Now the director has been indemnified and the organization is not out of pocket. In other words, the organization’s balance sheet remains has been protected.

Because the organization was able to indemnify the director, when the organization made the claim made to the insurance company, the Side B insuring agreement on the organization’s D&O policy was triggered.  The insurance proceeds were paid out under the Side B provisions of the D&O policy and the organization’s balance sheet was restored. 

Read about what happens when an organization is unable to indemnify its directors or officers: Side A coverage – unindemnifiable loss.

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