What is Directors and Officers (D&O) Liability Insurance?

  • postauthorEditorial Staff
  • postdateJuly 10, 2024
  • postreadtime13 min read
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Directors and Officers (D&O) Insurance 

Directors and Officers (D&O) Insurance is a specialised form of liability coverage designed to protect individuals serving as directors or officers of a company or organisation from personal financial losses resulting from lawsuits and alleged wrongful acts in their managerial roles.

The global D&O insurance market is projected to reach USD 48.81 billion by 2030, growing at a CAGR of 9.90% from 2024 to 2030. The U.S. D&O market is expected to reach USD 22.6 billion by 2030.

In India, the Securities and Exchange Board of India has now made it mandatory for the top 1,000 entities by market capitalization to have Directors and Officers Insurance.

What Is Directors and Officers (D&O) Liability Insurance?

Directors and Officers Insurance is a type of liability insurance that provides financial protection to directors and officers of a company in the event they are sued for alleged wrongful acts in their capacity as company leaders. These policies typically cover legal expenses, settlements, and judgments arising from lawsuits related to decisions made by directors and officers while managing the affairs of the company.

Wrongful acts may include breaches of fiduciary duty, negligence, errors in judgment, and violations of laws or regulations. D&O Insurance is crucial for attracting and retaining talented individuals to serve on corporate boards and in executive positions, as it helps mitigate personal financial risk associated with their roles.

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How Does D&O Insurance Policy Work?

Directors and Officers (D&O) insurance policies typically operate in the following manner:

1. Coverage Scope 

D&O insurance covers the personal liability of directors and officers for claims arising from their decisions and actions while managing the company. This coverage extends to legal defense costs, settlements, and judgments.

2. Claims Process

When a claim is made against a director or officer, or the company itself, the insured party notifies the insurer. The insurer then typically appoints legal counsel to defend the insured in the lawsuit. Pertinently, the legal counsel is appointed with the mutual consent of both the insured and the insurer.

3. Investigation and Defense 

The insurer investigates the claim to determine its validity and negotiates settlements or defends the insured in court if necessary. Legal expenses incurred in the defense are typically covered by the policy.

4. Settlement or Judgment 

If the claim is settled or a judgment is reached against the insured, the insurer pays the covered amounts up to the policy limits, including legal costs and any settlements or awards.

5. Renewal and Premiums

D&O insurance policies are typically renewed annually. Premiums are based on factors such as the company’s size, industry, financial performance, and risk profile, as well as the limits and coverage options selected.

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Why Companies Should Buy Directors and Officers Liability Insurance?

Here are the key reasons why companies should buy Directors and Officers (D&O) Liability Insurance:

1. Legal Cost Coverage 

D&O insurance covers the legal costs, settlements, and judgments resulting from lawsuits alleging wrongful acts by directors and officers, such as misuse of company funds, errors and omissions, or misrepresentation of assets. This protects the personal assets of directors and officers.

2. Attract Potential Investors 

Investors often require companies to have a strong D&O insurance policy in place, as it reduces their risk exposure. Most startup funding contracts stipulate that a D&O policy must be purchased within 90 days of closing financing.

3. Bankruptcy Protection

If a company goes bankrupt, D&O insurance can still cover claims against directors and officers, as the policy is separate from the company’s assets.

4. Safeguard Personal Assets

D&O insurance protects the personal assets of directors and officers, allowing them to make decisions confidently without fear of personal financial loss.

5. Mitigate Diverse Litigation Risks

Directors and officers face a wide range of litigation risks, from claims by dissatisfied employees to large securities class actions by shareholders. D&O insurance helps mitigate these risks.

6. Compliance with Regulations

D&O insurance can help companies comply with regulations and demonstrate their commitment to protecting their leadership team and ensuring business continuity.

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Types of Directors and Officers liability insurance 

The types of Directors and Officers (D&O) liability insurance include:

1. Side A Coverage

Side A coverage steps in to provide direct coverage to Directors and Officers themselves in situations where the company is unable to provide indemnification, ensuring that their personal assets are safeguarded in severe cases where claims may threaten personal wealth.

2. Side B Coverage

Also known as “company reimbursement” coverage, Side B indemnifies the company itself. It reimburses the company for the legal expenses it incurs while defending its directors and officers. This is in cases where the company grants indemnification to its directors and officers.

3. Side C Coverage

Referred to as “entity coverage,” Side C extends coverage for the corporate entity itself. Under Side C coverage, the company is insured, and its corporate assets are at risk. This part of the policy responds when both individual directors and officers and the company are named as co-defendants. For publicly traded companies, Side C coverage typically applies in securities lawsuits.

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D&O Insurance Clause Structure

D&O insurance Types 


Who is insured? 

Assets at risk 

Type A 

This coverage provides personal liability protection for directors and officers when the company is unable to indemnify them. 

Individual Directors/Officers 

His or her personal assets  

Type B 

Reimburses the company for indemnification payments made to directors and officers. 

Individual Directors/Officers 

Company assets 

Type c 

Pays on behalf of the company loss that is incurred to the company itself resulting from a claim against the company 


Company assets 

Key Benefits of Directors and Officers Liability Insurance

Here are the key benefits for companies to buy Directors and Officers Liability Insurance:

1. Protects Personal Assets of Directors and Officers 

D&O insurance provides coverage for directors and officers when the company is unable to indemnify them, such as when the company is insolvent or facing criminal proceedings. This protects the personal assets of directors and officers from being at risk in such situations.

2. Financial Stability for the Company

D&O insurance reimburses the company for defense costs and settlements paid on behalf of directors and officers. This coverage helps maintain the company’s financial stability, as legal costs can run into crores of rupees and be a serious financial setback if uninsured.

3. Attract and Retain Top Talent

A comprehensive D&O policy acts as an incentive for potential directors and officers, providing a safety net against lawsuits. Many directors ask about the company’s D&O coverage before agreeing to join the board. Offering this protection helps attract and retain talented leaders.

4. Obtain Funding

Many venture capital and private equity firms mandate that a company has comprehensive D&O coverage before providing funding. A well-constructed D&O policy makes it easier for companies to obtain funding.

5. Protection Against Employment Practices Liability Claims

D&O policies include coverage for employment practices liability claims, such as discrimination, sexual harassment, and wrongful termination. This provides additional protection for the company.

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Directors and Officers Liability Insurance Coverage

Directors and Officers insurance typically covers a wide range of claims and liabilities arising from the actions and decisions of directors and officers while managing the company. However, there are also exclusions and limitations to what is covered under D&O insurance policies.

Here’s a breakdown:

directors and officers do liability insurance coverage

What is covered under D&O insurance?

  • Claims Alleging Wrongful Acts: D&O insurance covers legal defense costs, settlements, and judgments resulting from claims alleging wrongful acts by directors and officers. These acts may include errors in judgment, breaches of fiduciary duty, negligence, omissions, misleading statements, and violations of laws or regulations.
  • Shareholder Lawsuits: Claims brought by shareholders alleging financial losses due to mismanagement, fraud, or other wrongful acts by directors and officers are typically covered.
  • Third-Party Lawsuits: D&O insurance may cover claims from third parties, such as customers, clients, suppliers, competitors, or employees, alleging harm or losses resulting from actions or decisions of directors and officers.
  • Regulatory Investigations: Coverage may extend to legal expenses incurred in responding to investigations by regulatory bodies, such as the Securities and Exchange Board of India, RBI or other government agencies.
  • Entity Coverage (Side C): Some D&O policies include entity coverage, which protects the company itself from certain types of claims, such as securities litigation, employment practices liability, or discrimination lawsuits.

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What is not covered under D&O insurance?

  • Intentional Misconduct or Fraud: D&O insurance typically excludes coverage for intentional acts, fraud, criminal activities, or dishonest behaviour by directors and officers.
  • Illegal Acts: Claims arising from illegal activities or violations of criminal law are generally not covered under D&O insurance.
  • Prior Knowledge Exclusion: Some policies may include a prior knowledge exclusion, which means claims arising from wrongful acts that were known or should have been known prior to the policy’s inception may not be covered.

Who Is Covered Under D&O Insurance?

The following individuals are typically covered under a Directors and Officers (D&O) liability insurance policy:

a) Current, future, and past directors and officers of the company and its subsidiaries. The policy covers acts performed or omitted while in that position, even if the individual is no longer with the company.

b) Employees, when they are named in a lawsuit specifically targeting them in their capacity as a director or officer. This includes employees who serve on the board of directors.

c) Under the Side C or “entity coverage” portion of the policy, the company itself is covered. This provides coverage for the company when it is named as a co-defendant along with the directors and officers.

e) Spouses of directors and officers, if named in a lawsuit solely due to their spousal relationship.

f) Legal representatives of deceased, incompetent, insolvent or bankrupt directors or officers.

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Who Can Take Action Against Directors and Officers?

The following parties can potentially take legal action against directors and officers in India:

1. Customers and Competitors

Customers may bring claims against directors and officers if they believe that the company has failed to provide adequate services or has engaged in deceptive practices. Similarly, there can be claims that can arise from competitors of unfair business practices, antitrust violations, or actions that harm the competitor’s business.

2. Shareholders

Shareholders can bring derivative lawsuits on behalf of the company against directors and officers alleging breaches of fiduciary duties, mismanagement, or other wrongful acts that harm the company and its shareholders.

3. Regulators

Regulatory bodies like the Securities and Exchange Board of India (SEBI) can investigate and prosecute directors and officers for violations of securities laws or other statutory breaches. This can lead to civil penalties or criminal charges.

4. Creditors

When a company becomes insolvent, creditors may sue directors for allowing the company to incur debts when it was unable to pay them, alleging breaches of duty.

5. Employees

Employees may bring claims against directors for wrongful employment practices like discrimination, harassment, or wrongful termination.

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D&O Insurance Liability Claim Process

Here’s a step-by-step guide to the claims process for Directors and Officers (D&O) insurance:

1. Gather Information: The insured should gather all relevant information related to the claim, including documents, communications, and any other evidence that may be pertinent to the case.

2. Notification: The insured party, whether it’s a director, officer, or the company itself, should promptly notify the insurer of any potential claim or circumstance that could give rise to a claim.

3. Claims Investigation: Upon receiving the claim notification, the insurer will conduct an investigation to assess the validity and merits of the claim. This may involve reviewing the claim documents, conducting interviews, and gathering additional information from the insured and other relevant parties.

4. Legal Defense: If the claim proceeds to litigation or arbitration, the insurer will typically appoint legal counsel to defend the insured in court or other legal proceedings. The legal counsel is appointed with mutual consent of the insured and the insurer.

5. Settlement Negotiation: In some cases, the insurer may opt to negotiate a settlement with the claimant to resolve the dispute without going to trial.

6. Coverage Determination: The insurer will evaluate the coverage under the D&O insurance policy to determine the extent of coverage for the claim.

7. Payment of Claims: If the claim is covered under the policy, the insurer will make payments for covered losses, including legal expenses, settlements, and judgments, up to the policy limits. Payments may be made directly to the claimant or on behalf of the insured, as specified in the policy.

8. Resolution: Once the claim is resolved, the insurer will close the claim file, and the insured will receive confirmation of the resolution.

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D&O Insurance for Startups and SMEs?

Here is a summary of the importance of Directors and Officers insurance for startups and small businesses (SMEs):

1. Personal Asset Protection

D&O insurance provides personal asset protection for directors and officers, shielding their personal finances from being exposed in the event of a lawsuit.

2. Financial Stability

D&O insurance ensures financial stability for SMEs and startups by covering legal expenses, settlements, and judgments resulting from claims brought against directors and officers for alleged wrongful acts committed while in their roles.

3. Credibility and Investor Confidence

Having D&O coverage enhances the SMEs and startups credibility, instilling confidence in potential investors and attracting top executive talent.

4. Mitigating Legal and Regulatory Challenges

D&O insurance helps mitigate the financial impact of legal and regulatory challenges for SMEs and startups, ensuring that the business can continue to operate smoothly and pursue growth opportunities.

5. Tailored Coverage

D&O coverage can be tailored for to meet the unique needs and budgets of startups and small businesses, ensuring they obtain necessary protection without straining their resources.

6. Easier to Attract and Retain Talent

D&O insurance can be significant to attract industry leaders in the SME and startup space and top talent to the team, as experienced executives are more receptive to joining a business that protects its leadership from personal liability.

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How Much Does Directors and Officers Insurance Cost?

The following key factors affect the cost of D&O insurance in India:

  • Company Size and Complexity: Larger organisations with extensive operations and higher revenues may face greater exposure to legal risks, leading to higher premiums.
  • Industry Sector: Organisations operating in high-risk sectors such as finance, healthcare, or technology may face higher D&O insurance premiums due to their increased exposure to litigation and regulatory compliance challenges.
  • Claims History: The claims history of an organisation, including past lawsuits, regulatory investigations, or settlements involving directors and officers, can influence D&O insurance costs.
  • Corporate Governance Practices: Organisations with effective governance structures may qualify for lower D&O insurance premiums.
  • Financial Performance: Financially stable organisations with strong balance sheets may be viewed as lower risk and qualify for more competitive insurance rates, than those with a weak balance sheet.
  • Coverage Limits and Deductibles: The coverage limits and deductibles selected by an organisation can directly influence D&O insurance premiums. Higher coverage limits and lower deductibles typically result in higher premiums.
  • Legal and Regulatory Environment: The legal and regulatory environment in India, including changes in legislation, court rulings, and regulatory enforcement actions, can impact D&O insurance costs.

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Why You Should Buy Onsurity’s Directors and Officers Liability Insurance? 

Here are the key reasons why you should consider purchasing Onsurity’s D&O insurance:

1. Comprehensive Protection 

Onsurity’s D&O insurance provides comprehensive protection by covering legal defense expenses and financial damages stemming from allegations and lawsuits against directors and officers. This includes legal fees, out-of-court settlements, investigation costs, bail bond expenses, and managing public relations.

2. Affordable Premiums

Onsurity’s D&O insurance starts at just ₹10,000 per year, making it an affordable option for SMEs and startups.

3. Broad Coverage

Onsurity’s policy offers broad coverage, encompassing a range of individuals within the company, including executive directors, company secretaries, non-executive directors, in-house lawyers, shadow directors, risk managers, prospective directors, de facto directors, and employees in key management roles. Lawful spouses, estates, and legal heirs are also covered.

4. Custom Solutions

Onsurity creates plans that fit your needs, combining digital ease with personalized service. They are backed by experts who understand D&O risks, ensuring that you receive great risk management and custom solutions tailored to your business.

5. Rising Prevalence of D&O Claims

The rising prevalence of D&O claims highlights the elevated risk of personal liability for individuals in leadership roles. Onsurity’s D&O insurance is essential for protecting against these risks and ensuring that your business can continue to operate without the financial burden of legal challenges.


Directors and Officers Liability Insurance is a vital investment that offers financial protection, promotes good governance, and supports the long-term success and stability of an organisation. As the importance of D&O insurance continues to grow, it is a coverage that every company should consider as part of its risk management strategy.

While D&O insurance does not prevent claims, it provides a safety net that allows directors and officers to make decisions confidently, without fear of personal financial ruin. In today’s litigious business environment, where legal risks are on the rise, D&O insurance is an essential component of a comprehensive risk management strategy for companies of all sizes.


1. What is meant by directors and officers insurance?

Directors and Officers insurance is crucial for protecting the personal assets of a company’s directors and officers in case they are sued for decisions made while acting in their capacity within the company.

2. What does directors and officers insurance cover?

Directors and officers insurance, also known as D&O insurance, covers the personal liability of a company’s directors and officers for claims made against them while serving in their roles.

3. Is D&O policy mandatory?

No, directors and officers (D&O) liability insurance is not mandatory in India. It is an important and integral part of corporate governance, as it protects the directors and officers against personal liabilities.

4. How to choose the right D&O insurance policy for my company?

Choosing the right policy involves evaluating coverage needs, assessing the company policies, checking insurer reputation and seeking legal advise.

5. Why do small and SMEs in India need D&O liability insurance?

D&O is equally essential for small-scale businesses, especially in today’s litigious environment where directors and officers are increasingly vulnerable to lawsuits.

6. What factors determine the cost of Directors and Officers Insurance?

Several key factors determine the cost of directors and officers liability insurance including company size, type of industry, number of directors, claims history and governance.

7. What is the difference between D&O insurance and other types of liability insurance?

D&O insurance is different from General Liability Insurance, Professional Indemnity Insurance, and Management Liability Insurance in its specific focus on the personal liability of directors and officers.

8. Is D&O insurance only for corporate companies?

No, D&O insurance is not exclusively for corporate companies. D&O is applicable to a start up, newly incorporated entities as well.

9. Does D&O insurance cover fines and penalties?

Yes, D&O policy covers civil fines and penalties unless it is uninsurable by law.

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