D&O Stack
What is a D&O Stack?
A D&O Stack (often referred to as a D&O tower) refers to a specialized, layered structuring of Directors and Officers liability insurance policies. To understand its meaning, one must look at how large-scale corporate risks are managed. Because standard litigation against a company's leadership can easily result in tens or hundreds of millions of dollars in legal fees and settlements, no single insurance carrier is typically willing to take on that entire financial exposure alone.
D&O Stack in More Detail
The definition of a D&O stack involves a primary insurance policy sitting at the foundation, topped by multiple sequential layers of excess insurance provided by different carriers. Each layer in the “stack” acts like a financial tier:
- The Primary Layer: This is the base policy that responds first to a claim. It dictates the primary terms, conditions, and exclusions for the entire stack.
- The Excess Layers: Once the primary policy’s financial limit is completely exhausted (paid out), the first excess policy triggers. If that limit is also breached, the next excess policy in the stack activates, and so on.
- The Follow-Form Structure: To ensure seamless coverage, the excess layers typically “follow form,” meaning they adhere to the exact same coverage rules established by the primary policy.
In corporate risk management, the phrase may refer to the strategic combination of Side A, Side B, and Side C coverages stacked together to protect both the personal assets of the board members and the corporate balance sheet. Often, the very top of a D&O stack features a dedicated “Side A Difference in Conditions (DIC)” policy, which serves as a catastrophic safety net solely for individual directors when the corporation cannot or will not indemnify them. Ultimately, utilizing a D&O stack allows a company to secure massive coverage limits while diversifying carrier risk.
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