What D&O insurance is designed to protect

A D&O policy generally responds to claims made during the policy period alleging a wrongful act by an insured director, officer or other defined person. Defence costs are commonly included within the limit, meaning legal expenses can reduce the amount available for settlement.

Side A

Side A protects insured individuals when the company cannot legally or financially indemnify them. This protection becomes especially important during insolvency, regulatory proceedings or disputes over corporate indemnification.

Side B

Side B reimburses the company when it indemnifies directors and officers for covered claims.

Side C

Side C provides entity coverage for the company, often limited to securities claims in public-company programmes. Its scope and its effect on the shared limit require careful review.

AI governance as a board exposure

Boards are increasingly expected to understand how material AI systems are selected, tested and supervised. Claims may allege that management overstated an AI capability, failed to control automated decisions, ignored cyber vulnerabilities or did not disclose a material dependency on a technology provider.

The board should receive reporting that distinguishes low-risk experimentation from AI uses capable of affecting customers, employees, safety, financial reporting or regulatory compliance.

Disclosure and performance claims

Unexpected financial results, project delays, cyber incidents, product failures and compliance problems can lead investors or shareholders to question earlier statements. The D&O issue is often whether the company and its leadership described the risk accurately and updated the market when circumstances changed.

Meeting minutes, escalation records and the evidence supporting public statements can become central to the defence.

Insolvency and creditor claims

Financial distress can change the interests surrounding the board. Creditors, insolvency practitioners and other stakeholders may examine dividend decisions, transactions with related parties, asset transfers and the timing of restructuring measures.

A programme should be tested for the possibility that the company cannot fund a director’s defence. Dedicated Side A limits and the priority of payments clause can be critical.

Employment and organisational conduct

Discrimination, harassment, retaliation and wrongful termination allegations may be covered by a separate employment practices liability policy or a management liability package. The boundary with D&O insurance should be clear, particularly for claims naming both the entity and senior executives.

Regulatory investigations

Investigation coverage varies significantly. A policy may distinguish between informal requests, interviews, formal investigations and enforcement proceedings. The point at which coverage begins can materially affect the recoverable defence cost.

How to assess the limit

Limit selection should consider the company’s ownership, market value, debt, jurisdictions, regulatory profile, transaction plans and litigation environment. Benchmarking against similar companies is useful but should not replace scenario analysis.

Boards should model at least one claim involving several directors, a regulatory investigation and parallel proceedings. The exercise should show how defence costs erode the limit and whether one matter could exhaust protection for all insured persons.

Renewal checklist for boards

• Confirm the definition of insured person includes the intended executives and committee members.
• Review investigation coverage and notification requirements.
• Test conduct, fraud, prior-knowledge and insured-versus-insured exclusions.
• Examine change-of-control and run-off provisions before a transaction.
• Review Side A protection, priority of payments and insolvency treatment.
• Coordinate D&O with cyber, professional liability, crime and employment policies.
• Establish an internal protocol for notifying circumstances before they become claims.

Conclusion

D&O insurance is most effective when it is aligned with board governance and realistic claim scenarios. The programme should protect individual decision-makers, preserve access to defence funding and respond coherently with the company’s other insurance policies.

Next step: Request a D&O wording and limit review from Kompetenz.