Aon | Financial Services Group
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The ability to fill gaps in coverage is the most alluring, yet also most mysterious, characteristic of Side A Difference in Conditions (DIC) coverage. Having earned the moniker of “sleep insurance,” Side A DIC is said to allow directors and officers (D&Os) to sleep at night knowing their personal assets will be better protected by insurance – even if the underlying D&O insurance program has been exhausted or will not respond to the claim.
Coverage
Side A DIC provides coverage outside of the Side ABC limits on a D&O tower and only protects D&Os’ personal assets. The underlying Side ABC limits resolve to do the following: provide coverage for D&Os when the entity cannot or will not indemnify (Side A); reimburse the company for indemnifying D&Os (Side B); and pay claims made against the entity (Side C). Side A DIC, meanwhile, both provides excess Side A coverage and will drop down to fill any gaps, when the underlying insurers either cannot or will not respond to a claim against a D&O.
Notably, a Side A DIC policy does not follow form with the other three main coverage parts; it includes broader policy language and fewer exclusions. Typically, a Side A DIC policy only includes one exclusion – that of Conduct/Fraud. Side A DIC has no deductible or retention, and therefore will pay from dollar one for claims made against D&Os.
Triggers
One of the most common Side A DIC triggers is when an entity has filed for bankruptcy. Unlike the Side ABC policies, the Side A DIC does not provide coverage to the entity and therefore cannot be held as an asset of a bankruptcy estate. With the Side ABC policies being, at times, argued to be assets of the bankruptcy estate, Side A DIC should provide more readily available coverage against D&Os in the bankruptcy context.
Other common events that trigger Side A DIC include: exhaustion of underlying limits, the underlying Side A carrier declining coverage due to policy restrictions (e.g., an “insured vs. insured” exclusion), or an underlying carrier attempting to rescind coverage.
Side A DIC provides an important safety net that can help entities attract and retain corporate executives and board members. It provides broader protection for D&Os’ personal assets in the event an insurer refuses to pay a Side A claim. In the high-stakes world of D&O claims, Side A DIC coverage serves to fill in the gaps, allowing D&Os to have peace of mind. If you have questions or are interested in coverage, please contact your Aon broker.
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