Directors & Officers Insurance Guide — Protecting Corporate Leaders
D&O insurance protects corporate directors and officers from personal liability for decisions made while managing the company. Without D&O coverage, board members risk personal financial ruin from lawsuits over business decisions.
D&O insurance covers the personal liability of directors and officers for "wrongful acts" — errors in judgment, negligence, breach of fiduciary duty, misrepresentation, or failure to supervise. It covers: defense costs (legal fees — the largest cost of D&O claims, even if the claim is groundless), settlements and judgments, and regulatory investigations (SEC, DOJ investigations of corporate practices). D&O policies have three coverage sections: Side A (directly covers directors and officers when the company cannot indemnify them — the most important coverage), Side B (reimburses the company when it indemnifies directors and officers), and Side C (covers the company itself for securities claims). Any company with a board of directors (including non-profits and startups) should have D&O insurance. Outside directors will typically insist on it before joining a board. Even for private companies without outside directors, D&O protects founders from personal liability for business decisions. Business insurance guide →
Coverage Details and Selection
Who is covered: Current and former directors and officers, and sometimes managers and supervisors (extended through endorsements). The policy covers individual persons, not just board positions. If a named director rotates off the board, coverage typically extends for acts that occurred during their tenure. Common exclusions: Fraud and dishonesty (if a final judgment establishes fraudulent conduct), illegal profits (profits improperly gained), intentional violations of law, bodily injury and property damage (covered by general liability), employment practices (discrimination, harassment — covered by EPLI — employment practices liability insurance), and prior acts (acts before the policy inception date). D&O policies do cover alleged fraud (if the claim alleges fraud but has not been proven) — they cover defense costs. They exclude proven fraud (after a final adjudication). Choosing coverage: Private companies: $1-5M in coverage, costing $5,000-30,000/year depending on revenue, industry, and risk factors (litigation history, financial health, M&A activity). Non-profits: $1-2M in coverage, $3,000-10,000/year. Public companies: $5-50M+ in coverage, $50,000-500,000+/year. Key considerations: the policy should be "non-rescindable" for Side A (the insurer cannot rescind coverage for individual directors if the application contained misrepresentations — this is critical because insurers often try to rescind policies after a claim is filed), adequate limits (defense costs alone can reach $1-5M in complex securities litigation), and no priority of coverage issues (Side A should respond before Side B when the company cannot indemnify). Compare D&O insurance quotes →
FAQs
Do startups need D&O insurance?
Yes. Startups face unique D&O risks: investor lawsuits if the company fails or is sold at a low valuation, employment-related claims from former employees (often covered by a separate EPLI policy but may overlap with D&O), regulatory claims (SEC, state securities regulators), and claims from creditors if the company becomes insolvent. Startup D&O coverage costs $3,000-15,000/year for $1-2M in coverage. Many venture capital investors require portfolio companies to carry D&O insurance. If you are raising funding, expect investors to ask about D&O coverage.
Does D&O insurance cover employment practices claims?
Not always. Some D&O policies include employment practices liability (EPLI) coverage for discrimination, harassment, and wrongful termination claims, but many specifically exclude them. If EPLI is important for your company (and it should be in today's environment), buy a separate EPLI policy or ensure your D&O policy includes EPLI coverage with adequate limits. EPLI claims are the most common type of management liability claim, especially for companies with employees. A combined D&O/EPLI policy can save 10-15% over separate policies.
What is "entity coverage" in D&O insurance?
Entity coverage (Side C) covers the company itself for securities claims — typically claims by shareholders that the company made misleading statements that affected the stock price. Side C coverage is essential for public companies, important for private companies that have issued securities (equity to investors), and less relevant for non-profits. Private companies should consider whether investors have rights to sue for securities violations. If you have outside investors, Side C coverage provides important protection for the company.