Directors and Officers (D&O) liability insurance is not a luxury—it is an essential component of risk management for any company or organization. Whether it’s about protecting individuals facing legal action or reassuring talent stepping into leadership roles, this coverage can make a critical difference. Here is an overview of the key features of D&O (Directors and Officers) liability insurance policies.
What is D&O Insurance?
D&O insurance is designed to protect directors, officers, and sometimes the company itself from claims resulting from wrongful acts committed in the course of their duties. These claims may come from shareholders, creditors, employees, or even regulatory authorities.
What a D&O Policy Covers: The Three Main Insuring Agreements
Most D&O policies offer coverage across three main components:
- Side A – Individual Coverage: Covers defense costs and indemnification for a director or officer who is not indemnified by the company.
- Side B – Corporate Reimbursement: Reimburses the company when it indemnifies a director or officer, where permitted or required by law.
- Side C – Entity Coverage: Covers the company itself, particularly in securities-related claims.
Subject to the policy’s terms, limits, and exclusions, D&O insurance generally covers economic or financial losses resulting from breaches of duty by directors or officers in their official capacities.
Triggering Coverage
D&O insurance policies have certain distinctive features, once of which being the method of triggering coverage.
“Claims-Made” Policies: The Predominant Basis
Most Directors and Officers (D&O) liability insurance policies operate on a ‘claims-made’ basis, regardless of when the wrongful act or damage occurred.
Example: A loss resulting from a wrongful act committed in 2022 but first reported in 2024—while the policy is in force—may be covered, provided the insured provided that the insured had no prior knowledge of the act or circumstances likely to give rise to a claim.
Be Cautious with the Definition of a “Claim”
A “claim” may include:
- a formal demand letter
- a notice (written or not) of intent to sue
- the service of legal proceedings
- even an email alleging a wrongful act, depending on the policy wording
The definition of a “claim” has been the subject of litigation. Carefully reviewing the policy and its definitions is a responsibility that falls on directors and officers.
What D&O Insurance Does Not Cover: Common Exclusions
D&O policies contain important exclusions that should be anticipated. Common examples include:
Prior Acts or Known Circumstances
Policies generally exclude claims arising from wrongful acts that were known or reported prior to the inception of the policy… However, if such acts were reported under a prior policy, liability for the resulting claim may rest with the previous insurer.
Ongoing or Prior Litigation
Claims arising from pending litigation or based upon the same facts as prior litigation are often excluded. This is intended to prevent the policy from being used to cover pre-existing events or circumstances known to the insured.
“Insured vs. Insured” Exclusion
This clause excludes claims brought by one insured party against another (e.g., a subsidiary suing its parent company), unless specific exceptions are outlined in the policy.
Bodily Injury and Property Damage
D&O policies do not cover bodily injury or property damage (e.g., fire or workplace injury). These risks are covered by other insurance policies (e.g., general liability insurance).
D&O insurance is more than a compliance obligation—it plays a strategic role in protecting and reassuring leadership teams and boards of directors. It also facilitates recruitment and helps retain top talent.
At Stein Monast, we support our clients in analyzing, interpreting, and applying D&O policies—whether in the early stages of a potential claim or in the context of litigation.
Do you have questions about the interpretation or application of a D&O policy?
Contact us today.
Our insurance law professionals are here to assist you.
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