Private company directors and officers insurance: General overview

The headlines and public perception of directors and officers (D&O) liability insurance often focus on public company D&O coverage. However, every year, thousands of private companies purchase D&O policies, which in many ways provide broader coverage than their public company counterparts.

The following offers a high-level introduction to private company D&O insurance. It is not intended to address coverage issues or policy variations in detail.

Essential coverages

D&O insurance protects directors and officers from claims brought against them for alleged “wrongful acts” in their official capacities. The definition of an “insured person” varies among different policy forms, with some extending coverage to include all company employees. Therefore, it is important for policyholders to carefully review their policies to understand who is covered and to identify potential coverage gaps. Private company D&O policies also cover the company itself for a broader scope of exposures than that afforded under a public company D&O policy.

No two policies are the same. Even despite commonalities in coverage features, variations in language can give rise to different coverage outcomes. As a basic overview, however, the three main D&O insuring agreements generally provide the following:

• Insuring agreement A (Side A) is designed to provide coverage for “insured persons” for non-indemnified losses. For example, if a company is legally prohibited to indemnify a director or officer, Side A provides protection for the “loss” they sustain, such as defense costs and other losses they incur. The insurer does not reimburse the company, rather, the insurer pays or advances loss directly on the individual’s behalf.
• Insuring agreement B (Side B) is designed to reimburse the company when the company indemnifies its directors and officers. The individual is protected because the company indemnifies them, and the company, in return, is reimbursed by the insurer, subject to its self-insured retention.
• Insuring agreement C (Side C) is designed to protect the company when the company itself is the subject of a claim, also subject to a self-insured retention. As noted above, coverage for private companies is traditionally broader than for public companies, which is typically limited to securities claims.

Common coverage exclusions

As with any policy, there are some common exclusions found in most private company D&O policies, and it’s important for risk managers and those making insurance decisions to understand the potential coverage limitations. The following section examines six common exclusions that may appear in your policy.

1. Conduct/fraud exclusion: Most, if not all, D&O policies will have some variation of the conduct or fraud exclusion. The exclusion may, for example, provide that the policy does not cover claims arising from deliberate criminal or deliberate fraudulent acts or willful violations of law committed by an Insured; however, the exclusion customarily is applicable only when there is a final non-appealable adjudication of such conduct. Policies vary as to whether the adjudication must come in the underlying action itself or can arise in other forms of proceedings as well. Allegations of fraud and misconduct are common, so with “final adjudication” wording, an allegation alone is not enough for insurers to disclaim coverage under the policy.
2. Personal profit/financial gain: Most policies exclude coverage for loss arising from any personal profit, financial gain, remuneration or other financial advantage by an insured to which such insured is not legally entitled. As with the conduct/fraud exclusion, this exclusion is most often conditioned by some form of final, non-appealable adjudication qualification.
3. Insured v insured: Claims brought by or on behalf of one insured against another are typically not covered, with certain exceptions depending on the policy’s specific wording. Exceptions may include claims against directors and officers brought by bankruptcy constituents who might stand in the shoes of insureds (trustees, receivers, or custodians, for example), Side A defense costs and others. In some instances, if a claim is brought by a former director or officer, coverage might be available if the director or officer has been separated from the company for a certain number of years. Policyholders should be reviewing this exclusion carefully. Note that, while many public company policies limit this exclusion to entity v. insured, it is still the norm that private company forms also exclude claims brought or assisted by insured persons.
4. Contract: Claims alleging or based upon contractual liability are typically not covered; however, some policies include an exception for liability that may otherwise arise in the absence of a contract. Although rare, some policies might also include an exception for defense expenses.
5. Prior acts (retroactive date): A prior acts date defines the earliest date a “wrongful act” can occur for a claim to be covered. If a claim is made against an insured during the applicable policy period and alleges wrongdoing that pre-dates the prior acts date in the policy, coverage would be excluded based upon the prior acts date. Depending on the language, this exclusion may remove coverage for an entire claim or just for the part which predates the relevant date.
6. Antitrust: Private company D&O policies generally preclude coverage for claims arising out of unfair trade practices, price-fixing, restraint of trade, monopolization and related exposures. These types of claims most often impact the corporate entity. The exclusion does not generally appear in public company D&O policies as coverage for the company itself is limited to securities claims.

Beyond these common exclusions, many policies also contain limitations that underscore the value of working with a knowledgeable broker. These exclusions highlight why it’s essential for policyholders to have a well‑coordinated and comprehensive insurance program that addresses potential exposures — especially those that may fall under a different type of policy, such as:

1. Bodily injury: Claims for any actual or alleged bodily injury, including sickness and disease, are excluded under most D&O policies. The exclusion often expands to include claims for damage to or destruction of tangible property as well as claims for mental anguish and distress. A claim for bodily injury or property damage would likely be covered under a general liability policy.
2. Employee benefits law: Claims for violation of obligations pursuant to any workers compensation, disability benefits, unemployment compensation, unemployment insurance, retirement benefits, Social Security benefits or similar law are excluded with the expectation that they may be covered under a fiduciary liability, workers compensation or employee benefits policy.
3. Professional services: Claims arising out of the rendering or the failure to render a service to a customer or client as often excluded as these types of claims would likely be covered by an errors and omissions (E&O) policy.

Together, these exclusions illustrate why policyholders benefit from a coordinated insurance strategy — one that identifies potential gaps early and ensures every exposure is properly addressed.

Note that many of the policy exclusions can be drafted with exceptions, often referred to as carvebacks. The scope of available exceptions will vary on a case-by-case basis.

Claim notice obligations

Policyholders must also be aware of the policy’s claim reporting requirements. Private company D&O policies, like public company ones, are written on a “claims made” or “claims made and reported” policy form. This means that claims made during the applicable policy period must be reported within the time frame specified by the policy — sometimes within the policy period or no later than an identified period of time after, often between 30 and 90 days. Claim reporting requirements are policy-specific.

Takeaways and practical steps for risk managers

• Work with a trusted broker to discuss any questions about coverage and policy placements you may have.
• Conduct annual policy reviews to ensure the right policies and limits are in place. Annual reviews also help to ensure your coverage keeps pace with evolving terms and enhancements available in the market specific to your risk profile.
• Keep HR, legal and operations aligned on claims reporting.
• Consult your broker’s claims advocate before, during and after claims.