Directors & Officers (D&O) Insurance
D&O protects the personal assets of your founders, directors and officers, and the balance sheet of the company itself, when leadership is sued over the decisions it makes. This guide explains what it covers, what it leaves out, what drives the price and how to tell whether your current policy would actually respond.
- What it is
- Insurance that pays defense costs, settlements and judgments when your leadership or your company is sued over management decisions.
- Who needs it
- Any company with outside investors or a board. Most institutional investors require it before a priced round closes.
- Biggest pitfall
- Buying the cheapest form available, which often narrows entity coverage, excludes regulatory investigations or lets the carrier walk away on an allegation of misconduct before anything is proven.
- What drives price
- Stage and capital raised, industry, runway, board composition, claims history and the limits you buy.
- Typical spend
- Roughly $2,000 to $15,000 a year at Seed and Series A, higher for AI, crypto and fintech companies.
What is D&O insurance, in plain English?
Every decision your leadership team makes, from how you describe your metrics to investors to whether you take an acquisition offer, can be second-guessed in court. D&O insurance pays to defend those decisions. It covers your founders, directors and officers personally, and in most private company policies it also covers the company itself when it is named in the same lawsuit.
The easiest way to see where D&O fits is by who is suing and why. If a customer sues because your software failed, that is an E&O claim. If an employee sues over a termination, that is an employment practices claim. If an investor sues because they believe the board misled them before a down round, that is D&O. D&O is the policy for claims about how the company is run, not what the company sells.
For venture-backed companies, D&O is also a fundraising document. Investors read it at every round, and independent directors read it before they accept a seat. Inadequate limits, a narrow definition of what counts as a claim or a broad exclusion can delay a close or cost you the board member you wanted.
Who needs D&O, and when?
Any company can be sued over how its leaders made decisions. What changes as you grow is how many people have a reason to sue and how much money is at stake. This table maps the usual milestones to what we would recommend. It is general guidance, and your lawyers can tell you where specific duties apply.
Pre-seed
Founders only. Low urgency, but know what is coming.
DiscussFirst investors
Angels and SAFE holders start asking for proof.
Get readyBoard forms
Independent directors want cover before they sign.
Buy nowSeries A and later
A closing condition, often with minimum limits.
RequiredExit or wind-down
Claims can arrive after the deal closes.
Plan run-offHave D&O bound before the first outside dollar arrives, not after the term sheet lands.
| Where you are | Do you need D&O? | Why |
|---|---|---|
| Founders only, no outside money, no employees | Worth discussing, rarely urgent | Few people can say they were misled. Revisit the day you sign a large contract, take on debt or add a co-founder. |
| First angels, SAFEs or a small seed round | Yes, soon | Anyone who funds you can later claim they were told something untrue. Many investors ask for proof of coverage before wiring. |
| An independent director or advisor joins the board | Yes, expect to be asked | Experienced directors usually want coverage in place before they accept a seat, because their own savings are what is exposed. |
| Priced round, Series A and later | Yes, typically required | Investors often make it a closing condition and may specify minimum limits. Check the term sheet early. |
| Regulated or scrutinized business (fintech, digital assets, healthcare, consequential AI) | Yes, with investigation cover | Regulators usually ask questions long before anyone files a lawsuit. Confirm what counts as a "claim" in the policy. |
| Preparing a sale, IPO or token issuance | Yes, and plan the deal terms | Transactions create new claims and new questions from underwriters. Ask about run-off before you sign. |
| Winding down | Keep coverage or buy run-off | Creditor and investor claims often appear months after the doors close. |
What D&O covers, and what it doesn't
What’s Covered
- Investor lawsuits alleging mismanagement, misrepresentation or breach of fiduciary duty
- Regulatory investigations and enforcement actions against your executives, when the policy defines a claim to include them
- Derivative suits brought by shareholders on the company’s behalf
- Claims against the company itself (entity coverage), including those tied to fundraising and M&A
- Claims from competitors, vendors or creditors alleging wrongful management acts
- Defense costs, settlements and judgments, typically paid as they are incurred
What’s NOT Covered
Most D&O policies exclude:
- Fraud, criminal acts or illegal personal profit, once proven in a final adjudication
- Bodily injury and property damage, which belong on general liability
- Claims arising from facts known or litigation pending before the policy began
- Employment claims such as wrongful termination, unless EPL is purchased alongside it
- Errors in the products or services you sell, which belong on E&O
- Most claims one insured brings against another, subject to important carve-backs
Does D&O cover criminal acts and fraud?
Short answer: not if a court finally decides the conduct was deliberate fraud or a crime, but most policies keep paying defense costs until that point. The phrase to look for is “final, non-appealable adjudication.” The details below decide whether that promise holds when you need it.
Who decides something was fraud?
Usually a court after all appeals, not the carrier’s own opinion and not an allegation in a complaint.
Why it matters: a policy that lets the insurer stop paying on suspicion leaves you funding the defense during its most expensive stage. See the exclusion glossary entry.
What if one executive is at fault and the others are not?
Severability means one person’s conduct should not be held against everyone else. Ask whether the exclusions and the application statements apply person by person.
Why it matters: without it, one bad actor can strip protection from the rest of the board.
Can the carrier get its money back?
Many policies let the insurer recover defense costs it advanced if misconduct is later established. Check who must repay and in what circumstances.
Why it matters: an unexpected repayment obligation can land on individuals long after the case ends.
Are fines and penalties covered?
Often limited. Criminal fines are commonly excluded, and civil penalties are covered only where the law allows insuring them and the policy says so.
Why it matters: do not assume; ask for the specific wording and any sublimit.
D&O vs. the coverages it’s confused with
Management liability claims rarely arrive labeled. Here is how common situations usually map to the policies a venture-backed company carries.
| Scenario | D&O | EPL | E&O | Crime |
|---|---|---|---|---|
| Investors sue the board after a down round, alleging metrics were overstated | Covered | No | No | No |
| A regulator subpoenas your CEO about a token sale or disclosures | Covered, if investigations are included | No | No | No |
| A former employee sues for wrongful termination | No | Covered | No | No |
| A customer sues because your product failed | No | No | Covered | No |
| Finance wires funds to a fraudster after a spoofed email | No | No | No | Covered, with social engineering cover |
| Selling shareholders sue former directors after an acquisition | Covered, if run-off was bought at close | No | No | No |
D&O vs. indemnification and personal guarantees
Founders often ask whether the company’s promise to protect them, or a guarantee they have signed, makes D&O unnecessary. They solve different problems.
| What it is | Who pays | Where it falls short | |
|---|---|---|---|
| Company indemnification (bylaws, indemnity agreements) | The company’s promise to cover its leaders’ legal costs and losses | The company, from its own cash | Worthless if the company is out of money, and the law limits what a company may indemnify. |
| D&O insurance | A policy that pays defense costs, settlements and judgments for covered claims | The insurer, above the retention | Subject to exclusions, limits and the claims-made trigger. |
| Personal guarantee (lease, loan, vendor credit) | Your signed promise to pay a debt if the company does not | You, personally | D&O generally does not pay debts you contractually guaranteed. |
Side A, Side B and Side C, explained
A D&O policy is really three insuring agreements stacked together. Most startups need all three, and the way they share one limit matters more than most founders realize.
- Side APays directors and officers directly when the company cannot or will not.
- Side BReimburses the company when it covers its leaders’ legal costs.
- Side CCovers the company itself, called entity coverage, for covered claims.
- Side A DICExtra personal protection that can respond when the base policy does not.
- Excess layersMore limit stacked above the base policy as your exposure grows.
A simplified picture. Real policies are built differently, and limits are shared unless you buy dedicated layers.
| Part | Who it protects | When it pays | Why it matters |
|---|---|---|---|
| Side A | Directors and officers personally | When the company can’t or won’t indemnify them, for example in insolvency or a derivative suit | The only thing standing between a director and their personal assets |
| Side B | The company | Reimburses the company after it indemnifies its directors and officers | Protects your balance sheet when you honor indemnification obligations |
| Side C | The company | When the company itself is named in a covered claim | Private company policies usually cover the entity broadly; public company policies limit this to securities claims |
| Side A DIC | Directors and officers personally | Sits above the primary program and drops down when underlying coverage is exhausted, denied or excluded | Often what independent directors ask for before they join your board |
Side A excess, DIC and how limits stack
A standard policy has one limit shared by everyone it protects. A lawsuit against the company can use up the money your directors were relying on. Extra layers exist to prevent that. See Side A, B and C for the basics.
| Layer | What it does | When to consider it |
|---|---|---|
| Base policy (Side A, B and C) | One shared limit for individuals and the company | The starting point for every company. |
| Dedicated Side A | Limit reserved for individuals only | When company indemnification may fail, such as insolvency or legal restrictions. |
| Side A DIC (difference in conditions) | Sits above the base policy and can pay individuals when the base policy will not, for example after a dispute over the policy itself | Heavy regulatory exposure, fragile finances, or an exit on the horizon. Forms vary, so read the terms. |
| Excess layers | Adds more limit on top of the base policy | As the amount raised and the number of investors grow. |
How much limit should we buy?
Many early-stage companies start around $1 million and add limit as they raise capital. Your investors’ minimums, the amount raised and how heavily your industry is scrutinized all push the number up.
Why it matters: ask your investors what they expect, and compare against peers at your stage before you settle on a figure.
Key policy terms that decide whether you get paid
A decision is made
Your board approves something in a year when Policy A is in force.
Year 1Coverage changes
Policy A ends and Policy B begins, or coverage lapses.
Year 2A claim arrives
The policy in force today responds, if it still covers acts from Year 1.
Year 3Never let D&O lapse, even briefly. Claims-made cover only responds to claims made while a policy is in force.
Claims-made trigger
The policy in force when the claim is first made responds, not the one in force when the decision happened.
Why it matters: letting coverage lapse, even briefly, can leave years of past decisions uninsured.
Definition of “claim”
Determines whether subpoenas, formal investigations and demand letters trigger coverage, or only filed lawsuits.
Why it matters: for crypto, fintech and AI companies, the investigation often costs more than any lawsuit that follows.
Conduct exclusion
Removes coverage for fraud or illegal profit. The question is when it applies.
Why it matters: you want it to apply only after a final, non-appealable adjudication, so defense costs keep flowing while you fight the allegation.
Insured vs. insured exclusion
Excludes most claims one insured brings against another, such as a co-founder suing the board.
Why it matters: carve-backs for derivative suits, whistleblowers and bankruptcy trustees should be written in.
Priority of payments
Tells the carrier whose losses to pay first when the shared limit is under pressure.
Why it matters: individuals should be paid first so the company’s own claims can’t drain the limit your directors rely on.
Run-off (tail) coverage
Extends coverage for pre-closing decisions, typically for six years, after you are acquired.
Why it matters: the buyer’s policy usually won’t cover what your board did before the deal, so run-off is negotiated into the purchase agreement.
Policy enhancements worth asking about
Two D&O policies with the same limit can respond very differently. These are the features we raise most often, in plain terms.
Advancement of defense costs
The insurer pays legal bills as they come, instead of reimbursing you at the end.
Why it matters: most companies cannot front six figures of legal fees while waiting for reimbursement.
Notice of circumstances
Lets you report a situation that may become a claim, locking it into the current policy.
Why it matters: if the policy changes or is not renewed, a later claim can still be tied to today’s coverage.
Investigation coverage
Pays when regulators or prosecutors open an inquiry, including informal requests, not only after a lawsuit.
Why it matters: for regulated companies, the inquiry often costs more than anything that follows.
Extended reporting period
The option to keep reporting claims after a policy ends. See ERP and tail coverage.
Why it matters: you can only use it if it is built in or priced before you need it.
Insolvency carve-outs
Preserves coverage for claims brought by a bankruptcy trustee or creditors, which many policies would otherwise exclude.
Why it matters: these are among the most common claims after a shutdown.
Outside directorships
Covers a founder who sits on another company’s board at your request.
Why it matters: a claim there can reach your personal savings even though it has nothing to do with your company.
Non-rescindable Side A
Prevents the insurer from cancelling individual coverage after the fact because of a company misstatement.
Why it matters: it keeps the personal protection intact even if the application is later questioned.
What happens to D&O when the company changes?
Because D&O is claims-made, life events matter more than they do for most policies. This is how the common ones usually play out, subject to your specific wording.
| Event | What typically happens | What to do |
|---|---|---|
| A new director or officer joins | They are usually covered going forward as an insured person, with terms depending on the policy | Tell your broker so records and renewal applications stay accurate. |
| You raise another round | Limits and price are often revisited at renewal, and some carriers want to be told mid-term | Check investor requirements before closing, not after. |
| You form or acquire a subsidiary | New entities may be covered automatically only up to a size, or only if you notify the insurer | Report it before or at closing. |
| You are acquired | A change-in-control clause typically stops coverage for new acts and leaves the old policy in place for earlier ones | Negotiate run-off into the deal; it is commonly bought for several years. |
| You shut down | The policy ends at cancellation or expiry, but claims can arrive later | Buy run-off or an extended reporting period before you cancel. |
| You enter bankruptcy or an assignment for benefit of creditors | Creditors or a trustee may pursue directors, and insureds can compete for the same limit | Ask about priority of payments and Side A early, and involve your lawyer and broker together. |
Six D&O claims we see founders underestimate
The down-round lawsuit
What happenedA company raised a flat round after missing its plan. Two earlier investors alleged the founders had overstated recurring revenue in the prior raise.
The claimBreach of fiduciary duty and misrepresentation against the CEO, two directors and the company.
What respondedSide B and entity coverage paid defense and a negotiated settlement, after the retention.
The regulator’s letter
What happenedA digital asset company received a subpoena about an earlier token distribution. Its executives each needed separate counsel.
The claimA formal investigation, with no lawsuit ever filed.
What respondedCovered only because the policy defined a claim to include formal investigations and carried no crypto exclusion.
The deal that left directors exposed
What happenedA startup was acquired. A year later, selling shareholders sued the former board over how the sale process was run.
The claimBreach of fiduciary duty against directors who no longer had any policy of their own.
What respondedThe six-year run-off policy negotiated into the purchase agreement.
The creditor suit after a wind-down
What happenedA company ran out of runway and shut down. A year later, its unpaid vendors and a bankruptcy trustee alleged the board kept spending after it knew the company could not pay its debts.
The claimBreach of fiduciary duty claims against former directors and officers, brought by creditors.
What respondedSide A coverage protected the individuals, which is why it matters most in insolvency. Run-off kept the policy alive after the shutdown.
The founder dispute
What happenedTwo co-founders disagreed over strategy, and one was removed from the board. The removed founder sued the company and the other founder.
The claimA claim by one insured against another, which many policies exclude.
What respondedIt depended on the wording. A policy with carve-backs for derivative suits and certain shareholder claims responded, while a narrow form would have excluded it.
The whistleblower letter
What happenedAn employee told a regulator that revenue was being recognized early. The company received a request for documents, and several executives needed their own counsel.
The claimA regulatory inquiry and potential claims against the executives.
What respondedCoverage turned on how the policy defined a claim and whether it extended to investigations and to individuals named in them.
Scenarios are illustrative composites based on common claim patterns, not specific Alton Risk clients.
How much does D&O cost, and what moves the price?
At Seed and Series A, D&O commonly runs from about $2,000 to $15,000 a year. Two companies at the same stage can still land far apart, because underwriters are pricing the likelihood that someone will one day be unhappy with how the company was run.
| Factor | Why it moves your premium |
|---|---|
| Stage and capital raised | More capital and more investors means more people with standing to sue, and larger potential losses. |
| Industry | AI, crypto, fintech and life sciences attract more regulatory attention, so fewer carriers compete and prices rise. |
| Runway and financial condition | Insolvency is one of the most common D&O triggers, so short runway is priced in directly. |
| Board composition and governance | Independent directors, regular board meetings and clean minutes signal lower risk. |
| Cap table and secondary activity | Complex preference stacks, secondary sales and SAFEs converting at very different prices create friction that becomes claims. |
| Planned transactions | An upcoming M&A process, IPO or token issuance raises exposure and often requires specific underwriting. |
| Limits and retention | Higher limits cost more, though each additional layer is usually cheaper than the first; a higher retention lowers premium. |
How to get D&O quoted and bound without delay
Straightforward companies can often be quoted quickly. Complex ones take longer. Having the information underwriters ask for ready is the biggest thing you control.
What to have ready
- Your legal entity name and any subsidiaries.
- Cap table and funding history, including investors and any secondary sales.
- Recent financials and runway.
- Board members, officers and any outside directorships.
- Any pending or threatened lawsuits, demands or regulatory inquiries.
- Planned transactions: financing, sale, IPO or token issuance.
- Prior D&O policy, if any, and your investors’ coverage requirements.
Is a certificate of insurance the same as the policy?
No. A certificate shows that coverage exists and summarizes it. The policy and its endorsements are what actually govern a claim. See certificates of insurance.
Why it matters: investors may ask for the full policy or key endorsements, so request them early.
What delays a bind most often?
Gaps in the application, an open legal matter nobody mentioned, naming the wrong entity, and starting during closing week.
Why it matters: each of these is avoidable with a short review before you fundraise.
What mistakes cost founders the most?
Letting a policy lapse, comparing premiums without comparing retentions and exclusions, and assuming a cheap policy will respond the same as a stronger one.
Why it matters: the cheapest quote is the one most worth reading line by line.
What underwriters ask before they quote
Having underwritten these risks on the carrier side, we know a D&O submission is won or lost on how clearly it answers the questions an underwriter is already asking. A well-prepared submission gets more carriers interested, and more interest is what moves price and terms.
- Latest financials, burn and runway, because solvency is the first thing priced.
- A current cap table and recent financing documents, including preference terms and any secondary sales.
- Board composition, with the number of independent directors and how often the board meets.
- Any demand letters, threatened litigation or regulatory contact, disclosed up front rather than discovered later.
- Upcoming transactions, such as a next round, acquisition talks, an IPO or a token launch.
- For digital asset companies, token structure, custody arrangements and the jurisdictions you operate in.
Seven questions to ask about your current D&O policy
- Does the policy include entity coverage, or only Sides A and B?
- Is a “claim” defined to include subpoenas, formal investigations and written demands?
- Does the conduct exclusion require a final, non-appealable adjudication before it applies?
- Is there a priority-of-payments clause that pays individuals first?
- Are your limits benchmarked against companies at your stage, and do they meet what your investors and board require?
- Does the insured vs. insured exclusion carve back derivative suits, whistleblowers and bankruptcy trustees?
- Do you know how run-off coverage would be handled if you were acquired next year?
If you can’t answer yes to all seven, send us your policy and we will review it line by line.
Industries that need D&O coverage
Glossary terms
→ How to get D&O bound fast enough to close your term sheet
→ 6 reasons high-growth companies should buy D&O coverage now
Related reading
Related coverages
Common questions
Do VCs require D&O insurance before a Series A?
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Yes. Most institutional investors require D&O insurance with specific minimum limits before closing a Series A, and many term sheets also require Cyber, Tech E&O and EPL. A coverage review before you start fundraising keeps insurance from delaying the close.
When should a startup get D&O insurance?
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Before taking institutional money, adding an independent board member or hiring your first executive from outside the founding team. Because D&O is claims-made, buying early also establishes continuous coverage, which improves pricing and terms at later renewals.
How much does D&O insurance cost for a startup?
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Premiums for early-stage startups typically range from $2,000 to $15,000 per year at Seed and Series A, depending on industry, capital raised, runway, board composition and claims history. AI, crypto and fintech companies often pay more. We shop multiple carriers to keep pricing competitive.
How much D&O limit should a startup buy?
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Many Seed and Series A companies start with $1 million to $3 million and increase limits with each round, each new board seat and any planned transaction. The right number comes from benchmarking peers at your stage and reading what your investors and directors require, which we do before quoting.
What's the difference between Side A, Side B and Side C D&O coverage?
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Side A covers directors and officers personally when the company cannot indemnify them, which is critical in insolvency or a derivative suit. Side B reimburses the company when it indemnifies its executives. Side C covers the company itself; in private company policies this is usually broad, while public company policies limit it to securities claims. Most startups need all three.
Does D&O cover employment lawsuits?
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Generally no. Wrongful termination, discrimination and harassment claims are covered by Employment Practices Liability (EPL). Many carriers package D&O, EPL, fiduciary and crime together as a management liability policy, which is often the most efficient way for a startup to buy them.
Can crypto and digital asset companies get D&O?
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Yes, though fewer carriers will write it and many standard forms include crypto or digital asset exclusions. We place these risks through specialty markets including E&S, Lloyd's and Bermuda, and focus on making sure regulatory investigations are covered, since that is where most of the exposure sits.
What happens to our D&O policy when we're acquired?
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A change of control typically ends coverage for new acts at closing. To protect former directors and officers for decisions made before the deal, companies buy run-off coverage, commonly for six years, and the cost is usually negotiated into the purchase agreement. Plan for it early in the deal process.
Will my coverage meet vendor and customer contract requirements?
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Yes. Investors, customers, landlords and partners often require specific policies, such as D&O, Tech E&O, Cyber and Crime, at minimum limits with additional-insured or waiver-of-subrogation language. We read your contracts, place coverage that satisfies them and issue certificates quickly so a deal never stalls on paperwork.
Where can I get D&O insurance for my startup?
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Alton Risk places D&O for startups at every stage from Seed through IPO. We benchmark your limits against peers, prepare your management team for underwriter questions, review your existing coverage for gaps and access specialty carriers through E&S, Lloyd's and Bermuda markets.
Does D&O insurance cover criminal acts?
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Generally not once a court has finally decided that the conduct was deliberate fraud or a crime, but most policies pay defense costs until that point. Fines and penalties are often limited, and some policies let the insurer recover advanced costs if misconduct is later proven. The wording on “final, non-appealable adjudication” and repayment is what to check.
Is a new director automatically covered under our D&O policy?
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Usually yes. Most policies define insured persons to include anyone who serves as a director or officer during the policy period, so a new board member is typically covered going forward. Tell your broker anyway, so your records, applications and renewals reflect the new person and any investor requirements are met.
Do we need D&O if we have not raised money from investors?
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It is not required by law, and a founder-only company with no outside money faces a lower likelihood of a claim. Employees with equity, lenders, customers and regulators can still allege harm from decisions leaders make, so it is often a question of timing rather than yes or no. Many companies add it just before the first outside investment.
What is Side A DIC coverage?
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Side A DIC (difference in conditions) is an extra layer of protection for individual directors and officers that sits above the base policy and can pay when the base policy will not, for example when the company cannot indemnify or the insurer disputes coverage. Forms vary, so read the terms before relying on it.
Does D&O cover the company or only the individuals?
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Both, depending on the policy. Side A and Side B protect the people, and entity coverage (Side C) protects the company itself. For private companies, entity coverage often responds to a wider range of claims than the securities-only coverage typical for public companies, but the scope varies, so confirm which claims the entity is covered for.
What is the difference between D&O insurance and a personal guarantee?
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A personal guarantee is a promise you sign to a lender, landlord or supplier to pay a debt if the company does not. D&O insurance covers claims made against leaders over their management decisions. D&O generally does not pay debts you personally guaranteed.
How quickly can I get proof of D&O coverage for an investor?
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Straightforward companies can often be quoted and bound quickly, while regulated businesses, short-runway companies or companies with open legal matters usually take longer. A certificate shows coverage exists, but investors may also ask for the policy or key endorsements, so request those early. Having your cap table, financials and board list ready speeds everything up.
What happens to our D&O policy if we shut the company down?
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The policy ends when it is cancelled or expires, but claims can still be made afterward, often from creditors, investors or former employees. Run-off coverage, bought before you cancel, extends protection for decisions made while the company operated. Ask your broker about it before you wind down.
Can't find an answer to your questions? Reach out to our team →
Sources and further reading: SEC Office of Investor Education, Investor.gov (opens in a new tab); IRMI: directors and officers (D&O) liability insurance (opens in a new tab); NACD: Director Essentials, Directors & Officers Liability Insurance (opens in a new tab); Hunton Andrews Kurth: Coverage Cutoffs in M&A Transactions (opens in a new tab); Lockton: Side A, B and C, understanding your D&O cover (opens in a new tab); IRMI: Claims-made policy (opens in a new tab); The Hartford: Claims-made vs. occurrence (opens in a new tab); IRMI: Extended reporting period (opens in a new tab); Bank of England: Insurance firms in run-off (opens in a new tab). This page is general information, not legal or insurance advice. Coverage terms vary by carrier, policy form and state.