A traditional D&O policy generally consists of three insuring agreements, known as agreements A, B and C, he said.

Side A offers coverage for individual directors and officers for losses that the company cannot indemnify. They can include losses from settlements/judgments in shareholder derivative lawsuits, allegations of federal security law violations, violating certain standards of conduct in state indemnification statutes, or when the corporation is financially unable to provide coverage for a director or officer.

However, if a court applies an automatic stay to the corporation's assets, it can freeze the traditional D&O policy and deny directors and officers immediate access to coverage, which can put their personal assets at risk, Mr. Pursiano said.

o Separate A-Side D&O policy (Without DIC Coverage)

A separate A-Side policy without difference-in-conditions coverage, purchased in addition to the traditional D&O Side A/B/C policy, strips away the coverage for Side B/corporate reimbursement and Side C/entity sections and provides dedicated coverage for individual directors and officers for losses the corporations cannot indemnify.

Having a separate A-Side policy is especially important if the corporation's traditional policy includes Side-C coverage. Securities claims made against a corporation fall under Side C, and the coverage is often viewed by the courts as an asset of the bankrupt estate. Separate A-Side also offers greater assurance that directors and officers may be covered if the corporation needs to access its policy's limits of liability.

o A-Side Difference-In-Conditions (DIC) Policy

While separate A-Side excess coverage may provide better protection for directors and officers than traditional Side A/B/C policies, A-Side Difference-In-Conditions further expands the policy's D&O coverage by offering fewer exclusions and broader coverage, Mr. Pursiano said.

A little-known coverage, up until recently, A-Side DIC is now filling the market need for extended D&O protection. As knowledge of A-Side DIC becomes more prevalent among board members, the trend toward having this form of A-Side is poised to get bigger, he said.

A-Side DIC extended coverage could include:

1. Non-rescindable feature in the event of a financial restatement. The DIC policy stays in force even if the corporation restates its financial earnings, unlike a traditional policy, where the coverage may be jeopardized, Mr. Pursiano said.

2. Narrower bodily injury/property damage exclusion. Unlike the one found in traditional Side A, DIC provides some coverage for lawsuits stemming from bodily injury/property damage allegations, he said.

3. Broader definition of a claim and no prior litigation exclusion.

4. No exclusion for violations of Section 16(b) of the Securities and Exchange Act of 1934, involving profits from purchases and sales of company stock within a six-month window.

5. No pollution exclusion. While still not covering directors and officers for pollution violations, DIC provides coverage against class action/shareholder lawsuits resulting from stock price dip resulting from pollution violations, Mr. Pursiano explained.

6. No presumptive indemnification wording. Full coverage is extended regardless of the language parameters of the company's bylaws/charter.

7. Limited insured vs. insured exclusion. According to Mr. Pursiano, DIC policies have much narrower exclusions than those found in traditional D&O policies for the situation when a director/officer sues or is sued by another director/officer, or when the director/officer sues its corporation.

In addition to these possible coverage expansions, an A-Side DIC policy can be used even before all the company's insurance funds are exhausted, which is beneficial in the event of bankruptcy, Mr. Pursiano said.

Further, an A-Side DIC policy's "drop-down" feature allows the excess policy to become the primary coverage for claims that the corporation cannot cover or that are excluded from the traditional policy, or in the event that underlying insurers have financial insolvency.

For example, if directors and officers are named in a fiduciary claim, which is generally subject to the ERISA exclusion of a standard D&O policy, they may be left without coverage. But if the corporation is in bankruptcy and the corporation has an excess A-Side DIC policy which doesn't contain an ERISA exclusion, this policy would drop down and cover them, he said.

Michael Ha is a former Assistant Editor for National Underwriter. He is now working as a freelancer in New York City.

Caption if there is art, use as pullquote otherwise.

With non-rescindable forms, drop-down features, and the elimination of prior litigation, pollution and ERISA exclusions, DIC policies are the broadest A-side policies--and demand is poised to get bigger.