Derivative Settlements Trend Higher, Side-A Coverage Becomes Crucial

Side-A Directors and Officers liability insurance helps to protect directors and officers in situations when the company they serve does not, cannot or refuses to indemnify them, such as in an insolvency situation or due to prohibitions by law. An example of such prohibition would be the monetary settlement of a derivative case, which is non-indemnifiable in many jurisdictions, notably including Delaware, where more than half of America’s publicly traded companies are incorporated. Derivative lawsuits are a tool through which shareholders can stand in the shoes of the company and seek to hold directors and officers accountable for alleged wrongdoing. In the early 2000’s, derivative actions were afterthoughts and were considered “tag-alongs” to securities class actions and generally settled on non-monetary terms, such as changes to corporate governance or amended disclosures.