Side A coverage under the typical D&O insurance policy provides what could be a last line of protection of individual executives in certain circumstance. In the following guest post, Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, analyses a recent Delaware shareholder derivative lawsuit to consider the circumstances in which Side A coverage may operate to protect corporate executives. I would like to thank Sarah for allowing me to publish her article as a guest post on this site. I welcome guest post submissions from responsible authors in topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Sarah’s article.
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A recent parallel derivative lawsuit filed in Delaware by shareholders of biotechnology company CytoDyn, Inc., (CytoDyn) provides a useful reminder of how Side A D&O insurance may work to cover executive perils. The facts alleged in the complaint by CytoDyn shareholders on behalf of the company and against the CEO, CFO, and chairman of the board, including that they “pumped and dumped” shares and ignored shareholder demands for inquiry in the wake of criminal and regulatory enforcement actions, exemplify scenarios for D&O underwriters where Side A coverage often provides costs for defense and settlement.
As D&O Diary readers may recall, a Cornerstone Research analysis published in August 2025 found that 47% of securities class actions with settlement hearing dates between 2019 and 2024 had parallel derivative suits with similar claims. Given that the same report found that the median settlement amount for Chancery Court parallel derivative actions was higher than for non-Chancery Court actions, $12.1 million for Chancery Court actions, compared to $6.7 million for non-Chancery Court actions, derivative litigation, like the case brought against CytoDyn, will likely continue to be filed.
In an effort to appreciate the potential applicability of Side A exposure to D&O insurance programs stemming from parallel derivative suits, like the one against CytoDyn directors and officers, the following will discuss the facts alleged in both the CytoDyn securities and derivative actions, criminal and regulatory enforcement actions, and how Side A coverage may work to cover certain executive perils.
Complaints against CytoDyn and its Executives
CytoDyn, a biotechnology company, developed a monoclonal antibody drug, Leronlimab, which purportedly targets a receptor on immune cells. Leronlimab was purportedly developed as an experimental treatment for HIV, cancer, and inflammatory diseases such as COVID-19.
The CytoDyn securities class action litigation (CytoDyn SCA), initially filed in 2021 against CytoDyn, its CEO, and CFO, alleged that CytoDyn and senior executives misrepresented the efficacy and regulatory status of Leronlimab in treating both HIV and COVID-19. Plaintiffs claimed that executives publicly described “statistically significant results” despite the FDA’s internal communications contradicting those assertions, and that the company engaged in capital raises based on those inflated representations.
Purportedly, when CytoDyn disclosed that it was not part of “Operation Warp Speed,” had not applied for Emergency Use Authorization (EUA), and that Leronlimab failed to meet primary FDA endpoints, CytoDyn’s stock fell from over $10 per share in June 2020 to below $3 in March 2021. The CEO and CFO were also alleged to have been selling shares of CytoDyn in the wake of issuing positive, but misleading, press releases as part of a “pump and dump” scheme, in violation of Section 10(b) and Rule 10(b)-5.
In June 2025, CytoDyn’s motion to dismiss the CytoDyn SCA was denied in part, with the court finding that the shareholder plaintiffs met PSLRA pleading standards for Section 10(b) and Rule 10b-5 violations, due to the strong inference of scienter given the CEO and CFO’s access to FDA data, their role in preparing SEC filings, and their timely stock sales following misleading statements.
Shortly after the CytoDyn SCA survived dismissal, the derivative complaint was filed against CytoDyn, its former CEO, CFO, and chairman of the board, in the Delaware Chancery Court. In it, the shareholder plaintiffs allege breaches of fiduciary duty, unjust enrichment, and corporate waste stemming from the same pattern of misleading communications surrounding Leronlimab alleged in the CytoDyn SCA. The derivative complaint also includes alleged failure of oversight by the CytodDyn board as well as failure by the board to act on shareholder demands.
The derivative action also cites the CytoDyn SCA, as well as regulatory investigations that were initiated against CytoDyn in 2021, as a reason for CytoDyn to have responded to shareholder board demands for corporate therapeutics. In addition, the derivative complaint further notes that, in 2022, CytoDyn’s CEO and clinical trial consultant were indicted, and eventually convicted, for allegedly lying to investors about the development of a medication to inflate the company’s stock.
During the same timeframe, the SEC filed a civil complaint against CytoDyn’s CEO and clinical trial consultant, alleging, in part, that the CytoDyn CEO sold $15.8 million worth of CytoDyn stock in the wake of a press release misstating that a complete application for Leronlimb had been submitted to the FDA. CytoDyn’s shareholders allege that CytoDyn’s board failed to act after the various regulatory and criminal actions were initiated and shareholder demands were made.
Discussion
As an initial matter, with respect to the CytoDyn SCA, coverage would likely fall within a traditional public-company D&O policy, primarily under Side C (Entity Securities Coverage) and Side B (Corporate Reimbursement), with supplemental protection under Side A for individual defendants. In this post, I will focus more on how Side A coverage may respond to the criminal and civil enforcement actions brought against individual directors and officers, as well as the recently filed derivative complaint. First, a brief primer on Side A D&O coverage.
Side A insurance is intended to protect individual directors and officers when the company cannot legally or financially indemnify them for claims arising from actions taken while acting within their leadership capacity. Side A coverage is often triggered in situations involving bankruptcy, derivative suits, or regulatory enforcement actions, where corporate indemnification is barred by law or public policy. Defense expenses or settlement may be paid by Side A if an insured company is insolvent or prohibited from advancing legal costs.
With respect to the SEC enforcement and criminal actions against CytoDyn’s executive leadership alleging personal misconduct and potential fraud related to FDA filings and insider trading, CytoDyn may be limited from indemnifying its executives pursuant to Delaware §145. Delaware §145 sets standards for indemnification (good faith, belief that conduct was in the interest of the corporation, no reasonable cause to believe conduct was unlawful in criminal proceedings) and limits indemnification for certain matters (e.g., where a director was adjudged liable to the corporation).
Thus, Side A may cover the regulatory enforcement and criminal proceeding, with CytoDyn’s insurer paying defense costs and settlements directly to the individual insured executives named, without corporate reimbursement.
Similarly, the derivative action against CytoDyn may also trigger coverage under Side A. Because the derivative lawsuit is brought on behalf of CytoDyn itself, Delaware § 145(b) does not permit indemnification of judgments or amounts paid in settlement of derivative actions in favor of the corporation (except under very limited court-ordered circumstances). This means that while expense reimbursement might be possible in some derivative suits, indemnifying a director or officer for the actual judgment or settlement paid to the company is restricted.
In such cases, the directors and officers may face non-indemnifiable personal exposure for defense costs and potential settlements, to which Side A coverage could apply. Thus, in the CytoDyn derivative action, where shareholders allege breaches of fiduciary duty, unjust enrichment, and oversight failures on behalf of CytoDyn, Side A may be the responding coverage section, which would fund defense costs for current and former directors and officers named in that suit.
Thus, between the derivative claims alleging fiduciary breaches, regulatory action, and criminal convictions, CytoDyn’s leadership faces a convergence of exposures that highlight the significance of Side A coverage being available to executives when other D&O coverage parts are unavailable.
The views expressed in this article are exclusively those of the author, and all of the content in this article has been created solely in the author’s individual capacity. This article is not affiliated with the author’s company, colleagues, or clients. The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter.