Last month we discussed six items to consider when selecting Directors' and Officers' (D&O) Insurance. Big backdating settlement hits D&O insurers discusses Side A excess coverage and how D&O Insurers Funded the $118 Million Partial Settlement of the Broadcom Options Backdating Derivative Suit:

The more than $100 million settlement of an options backdating lawsuit could be a harbinger of more frequent and costly claims for directors and officers liability insurers writing excess Side A coverage, observers say…the Broadcom case is notable because of the unusually large contributions of excess Side A insurers. Side A policies cover directors and officers for claims for which their company cannot or will not indemnify them. Typically, this arises when the company is insolvent or legally prohibited from indemnifying the executives, which is often the case in derivative lawsuits.

According to court records, Broadcom had $100 million in traditional ABC D&O coverage—primary and excess—which includes Side A, Side B and Side C coverage (see box, page 17). In addition, the Irvine, Calif.-based technology company had an additional $100 million in excess Side A-only coverage. Excess Side A insurers funded $40 million of the settlement.

Observers say derivative lawsuits rarely produce settlements or judgments large enough to exhaust the traditional ABC tower of coverage.

The article discusses how larger settlements and judgments are becoming a trend and how the increased claim activity could impact pricing and insurance conditions in the future. Despite this trend, buying separate Side A-only coverage is becoming more common:

Meanwhile, buying separate Side A-only coverage is becoming more common, said Victor Mustelier, a New York-based attorney at Mintz, Levin, Cohn, Ferris, Glovsky & Popeo P.C.

A survey released Sept. 9 by Towers Perrin reported a 33% increase in the purchase of Side A-only coverage among participating companies.