In D&O insurance, the insuring clauses set the stage. They tell you what the policy will do, who it will apply to and what specific terms you need to pay attention to. They are separate clause because they describe different types of risks and, as a result, may have different terms, conditions, limits of liability or retentions. 

You will have to consult your policy documents to confirm exactly what coverage your Directors and Officers insurance provides but here are a few scenarios that typically would and would not be covered:

What D&O insurance covers:

Side A: individual, non-indemnifiable liability
If an individual executive is named in a claim (such as a lawsuit or regulatory investigation) and that claim is alleging a “wrongful act,’ this clause may go into effect. The key is that the loss has to be “non-indemnifiable” meaning the company is not able to protect the executive itself. Most often this clause goes into effect when a company is insolvent and there are outstanding claims against officers but no money to pay for their legal defense. For this reason the retention on this clause is usually $0.
Side B: individual, indemnifiable liability
Take the same situation but, this time, imagine the company is financially stable. Now, the executive is able to be indemnified by the company and so the terms of coverage will be a bit different. First and foremost, a retention will apply to each Side B claim. And if it’s determined that an insured tried to make a claim under Side A but actually was able to indemnify the individual, the insured will owe the insurance company the Side B retention that was they almost avoided having to pay.
Side C: company liability
The first two clauses are focused on suits or investigations alleging that wrongful acts were committed specific individuals. But what happens when the company itself is named? This is often the case in securities claims. The wrongdoing of a whole company may have much more severe effects than that of a single person and (even when that’s not true) the cost to defend a company is significantly higher than that of an individual. The coverage offered for Side C claims will likely be more restrictive than for other types of claims. And if your company goes public, this clause is pared down even further to only cover securities claims since the costs to defend an entire public company are exorbitant.
Shareholder derivative demand costs (sometimes called Side D)
This coverage may be included as a full limit or as a sublimit. It depends on the carrier. The reason is that different carriers have different appetites for the risk that a company’s shareholders will sue the board of directors while acting on behalf of the company. This unique situation is called a “derivative demand suit.” Side D coverage will usually offer the limited protection of paying the costs required to investigate the truth behind shareholder’s claims.

What D&O insurance does NOT cover:

Claims that should be covered by other insurance
Bodily injury / property damage Products liability Pollution Employee benefits and ERISA violations Professional services Contracts Harassment, discrimination, workplace torts Violation of privacy law
Conduct exclusions
any deliberate criminal, dishonest, or fraudulent act should not be covered by insurance and the policies make that clear. Claims involving illegal profits are similarly excluded from coverage. The carrier would have to prove that the act was deliberate if they denied a claim and the insured took them to court. But, if they did prove that the conduct exclusions were triggered, the carrier would want every dollar back that they paid to defend the bad actor. We advocate for language that states that this exclusion isn’t actually triggered it’s irrefutable that the policy really shouldn’t have been defending them in the first place.
Insured vs. insured (IVI)
This exclusion precludes coverage for claims made by (or on behalf of) an insured against another insured. The carrier doesn’t want to have interests on both sides of a suit and they don’t want to leave the door open to collusion and insurance fraud. There is a very long list of exceptions (or carvebacks) to this exclusion. Please get in touch with us to learn more about these exceptions.
Major shareholder exclusion
This is usually added by endorsement. It states that if is claim is brought by a shareholder who owns a certain percentage of the company, the D&O policy won’t cover it. Please get in touch to discuss how this may apply to your D&O coverage.

D&O insurance claim examples

An investment firm bought a fintech company. A short time later they resold the company at a higher price. The angel investors, who have no board seats, are suing the company alleging that the board of directors did not perform sufficient due diligence and undervalued the company. This results in a significant loss for shareholders. The parties settle for $1,400,000.

Students filed a class action suit against an EdTech startup,, alleging that the company’s marketing materials misrepresented the accreditation of the startup’s technology to be used in a college classroom. Damages included expenses for additional classes and loss of income for class participants. Legal defense has already cost the company $500,00

A ride-sharing company, received a complaint from an investor, who alleges that the company improperly induced to issue a note payable to the company. Specifically, he alleges the company intentionally exaggerated their forecasted rate of growth and failed to disclose its tax lien. The company defaulted on the note when it failed to make the required principal and interest payments. The investor agreed to accept the company’s offer to convert promissory note to stock in the company, but the defense costs had already exceeded $120,000.

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If you’re interested in learning more about a customized D&O insurance program, you can always reach out to a member of our team by phone 646.854.1058 or email or get a quote below!