When your company’s directors and officers make key decisions, they take on personal risk. That’s where Directors & Officers (D&O) Insurance comes in. It protects both your leadership team and the company itself from lawsuits related to management decisions.

Most policies are divided into three layers, known as Sides A, B, and C. Each “side” covers different parties and situations, and understanding how they interact is essential to getting the right protection for your business.

Comparing Sides A, B, and C Coverage

Why the Three Sides of D&O Insurance Matter

Together, these three components form the foundation of modern D&O coverage. They ensure that leadership, the business, and investors all remain protected whether a claim targets individuals, the organization, or both.

For growing companies, this structure is critical. A single lawsuit can easily run into six or seven figures. Without the right coverage balance, that cost could drain the company’s finances or threaten a founder’s personal assets.

Side A: Protecting Individual Directors and Officers

What it covers

Side A pays on behalf of individual directors and officers when the company can’t indemnify them, for example if the business is insolvent or legally barred from covering those costs.

This is the most personal layer of D&O protection. It ensures that leaders aren’t forced to pay out-of-pocket for lawsuits that arise from actions taken in their managerial roles.

Why it matters

• Shields personal assets like savings, homes, and investments.
• Especially valuable in bankruptcy or regulatory investigations.
• Acts as the “last line of defense” when other protections fall away.

Example

A company enters bankruptcy and its board is accused of mismanaging funds. Because the company can’t indemnify anyone during insolvency, Side A steps in to cover the directors’ defense costs and settlement.

Side B: Reimbursing the Company

What it covers

Side B reimburses the company after it pays defense costs, settlements, or judgments on behalf of its directors or officers.

Why it matters

Even if your company is financially healthy, covering legal fees for leadership can create serious cash-flow pressure. Side B coverage replenishes what the company spends to protect its leaders, preventing those costs from eroding operating capital.

Example

A shareholder sues your CFO for breach of fiduciary duty. The company decides to advance legal defense fees to protect them. Once the case is resolved, Side B reimburses the business for those expenses.

Side C: Protecting the Company Itself

What it covers

Side C, also known as entity coverage, extends D&O protection to the company itself when it’s directly named in a lawsuit, typically alongside its directors or officers.

• For public companies, this usually means securities claims filed by shareholders.
• For private companies and startups, it can also cover a broader range of suits alleging mismanagement, misrepresentation, or other governance-related issues.
  

Why it matters

If your company is sued directly, Side C ensures defense costs and settlements don’t come solely out of your balance sheet. It also prevents disputes over whether the corporate entity is covered when leadership and the business are named together.

Example

Investors allege that your company exaggerated revenue figures before a funding round. Both the company and its board are named in the lawsuit. Side C covers the company’s own legal expenses and potential settlement.

Learn more about what D&O Insurance covers.

How the Three Sides Work Together

While each side covers a different set of risks, all three typically share one combined policy limit. That means:

• A large settlement under Side C (covering the company) can reduce what’s available under Side A for individuals.
• The same pool of funds pays out across all sides.

This overlap is why some companies, especially those with active boards or investor oversight, purchase an excess “Side A-only” policy. That additional layer protects individuals even if the main D&O limit is exhausted.

Example

A securities lawsuit names both the company and its directors.

• Side C covers the company’s legal defense.
• Side B reimburses the company for indemnifying executives.
• Side A protects individuals if indemnification isn’t possible.

All draw from the same limit, unless a separate Side A policy is in place.

Why Sides A, B, and C Matter

For early- and growth-stage companies, D&O insurance isn’t just about compliance. It’s about confidence. Each coverage side helps your business manage risk during pivotal moments:

• Raising capital: Most venture investors require D&O coverage before signing a term sheet.
• Appointing a board: Board members expect protection before they agree to serve.
• Operating in regulated industries: Fintech, HealthTech, and AI companies face heightened regulatory and investor scrutiny.

A well-structured D&O policy — one that balances all three sides — ensures your company and its leaders can focus on growth, not legal exposure.

These additions reflect how real-world startup risks often overlap with governance issues, and why modern D&O coverage must evolve with them.

Understanding these layers helps you make smarter decisions about how much coverage to buy and where to add protection.

Frequently Asked Questions

Why are Sides A, B, and C structured separately instead of bundled together?

The three-part structure reflects how liability is divided in real life. Sometimes a lawsuit targets individuals (Side A), sometimes the company (Side C), and sometimes both (triggering Side B). By splitting coverage this way, a D&O policy ensures the right party is protected in the right situation — and avoids gaps caused by conflicting legal duties or indemnification laws.

What happens if all three sides are triggered at once?

It’s common for lawsuits to name both the company and its executives. In that case, the same policy limit is shared across all three sides. Defense and settlement costs draw from one pool unless a company has an additional Side A-only layer to preserve personal protection for leaders.

Can private companies face Side C-type claims even without public shareholders?

Yes. While Side C is often associated with securities suits, private and venture-backed companies can face similar allegations — such as misrepresentation during fundraising, cap-table disputes, or errors in financial reporting. These are effectively “entity claims” that make Side C just as relevant outside the public market.

How does bankruptcy affect D&O coverage?

Bankruptcy is one of the most important triggers for Side A. When a company is insolvent, it can’t indemnify its directors or officers, leaving them personally exposed. A well-structured policy ensures Side A pays directly for their defense so leaders aren’t left funding litigation themselves.

How should a growing company think about D&O limits?

Coverage needs expand with your balance sheet and investor base. A company that just raised a $20 million Series B round has a very different exposure profile than a seed-stage startup. Many firms review D&O limits annually or after major milestones — new funding, new board members, or expansion into regulated markets — to make sure all three sides still offer balanced protection.

Vouch Specialty Insurance Services, LLC (CA License #6004944) is a licensed insurance producer in states where it conducts business. A complete list of state licenses is available at vouch.us/legal/licenses. Insurance products are underwritten by various insurance carriers, not by Vouch. This material is for informational purposes only and does not create a binding contract or alter policy terms. Coverage availability, terms, and conditions vary by state and are subject to underwriting review and approval.