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Increased Side A-only limits popular with some risk managers


Directors and officers liability insurance market executives are split over whether the demand for Side A-only towers of limits will continue to grow or has reached a plateau.

As the D&O market has softened in recent years, an increasing number of buyers have purchased Side A-only limits with their premium savings. In addition, those buyers often increased the amount of Side A limits they purchased in subsequent years.

Side A limits provide directors greater protection against personal financial loss in a securities class action lawsuit when an underlying traditional policy's limits are exhausted, or if that coverage is frozen in bankruptcy court to respond to any future damages that the organization might have to pay. Side A coverage protects officials directly when the organization is not allowed or chooses not to indemnify them for defense costs or the damages that the directors must pay plaintiffs.

Greg Flood, president of the New York-based IronPro unit of Ironshore Insurance Ltd. of Bermuda, said Side A-only policies currently represent 12% of gross premium compared with 7% to 8% last year.

Steve Shappell, managing director of the legal and claims practice for Aon Corp. unit Aon Financial Services Group in Denver, agreed that more companies are buying Side A-only coverage. In addition, many of those that already have the coverage are increasing their limits, he said.

But, "I do see some slowdown--absolutely," Mr. Shappell said.

Buyers are at least exploring the feasibility of purchasing additional Side A-only limits as their organizations' market capitalization grows and as the companies attract board members who want additional protection, said Brian Inselberg, the New York-based president of two D&O underwriting divisions at National Union Fire Insurance Co. of Pittsburgh, Pa., a unit of American International Group Inc.

Other market executives said they do not see new demand for the coverage.

"Everyone who will buy it already has," said Evan Rosenberg, a senior vp with Chubb Corp. unit Chubb Special Insurance of Warren, N.J.

Lou Ann Layton, a managing director and the national D&O practice leader for Marsh Inc. of New York, said she sees signs that buyers are turning more to traditional coverage than Side A-only towers.

The reason is that derivative-action losses--a concern that has been a main driver of Side A-only purchases--are being covered ultimately by Side B of policies when organizations are located in states that allow corporate indemnification of those losses. After indemnifying the officials, the organization then seeks recovery for the loss under Side B of the D&O policy.

But, Mr. Rosenberg said the recent settlement in the Just For Feet Inc. securities fraud case, in which directors agreed to pony up more than $41 million of personal assets to settle, might increase demand of Side A limits among smaller risks.

Ms. Layton cautioned, though, that Side A limits likely would not be helpful when securities class action plaintiffs demand a personal contribution from directors and officers because many plaintiffs will not consider that coverage part of defendants' personal wealth.