Directors and officers (D&O) liability insurance protects the people who run an organization against claims arising from their management decisions. Shareholders, investors, creditors, regulators, employees and competitors can all sue directors and officers personally, and defending those suits can be expensive even when the allegations fail. The Insurance Information Institute (Triple-I) notes that D&O policies are bought by for-profit businesses, privately held firms, not-for-profit organizations and educational institutions, not only by public companies.
The three insuring agreements: Side A, B and C
| Part | Who is protected | When it pays |
|---|---|---|
| Side A | Individual directors and officers | When the company cannot indemnify them, for legal reasons or because it is insolvent |
| Side B | The company (reimbursement) | When the company indemnifies its directors and officers and seeks reimbursement |
| Side C | The company itself (entity coverage) | For public companies, typically securities claims against the entity; private-company forms often extend it to other claims |
Triple-I describes Side A as protection for directors and officers when the company cannot indemnify them, Side B as protecting the organization's balance sheet when it indemnifies its leaders, and Side C as entity coverage that applies when the organization is named as a co-defendant in a securities lawsuit. Many companies add a separate Side A difference-in-conditions (DIC) policy on top of the main program, which protects individuals if the primary policy is exhausted, rescinded or frozen in a bankruptcy.
What kinds of claims D&O responds to
Triple-I lists the typical sources of claims as:
- shareholder suits over company or stock performance;
- creditor or investor suits alleging mismanagement or breach of fiduciary duty;
- misrepresentation in a prospectus;
- actions beyond an officer's authority;
- failure to comply with laws or regulations;
- employment practices issues, pollution and other regulatory claims, and cyber-related claims.
Securities litigation remains the headline risk for listed companies. Cornerstone Research reports that plaintiffs filed 207 securities class actions in federal and state courts in 2025, down from 226 in 2024 (Securities Class Action Filings, 2025 Year in Review). Private companies and nonprofits face fewer securities suits but more claims from investors, lenders, regulators, competitors and employees.
Standard exclusions
Triple-I lists fraud, personal profit, illegal compensation, pending and prior litigation, late notice, bodily injury and property damage, insured-versus-insured claims and ERISA among standard exclusions. Two details matter in practice. First, the conduct exclusions should apply only after a final, non-appealable adjudication, so defense costs are paid until then. Second, the insured-versus-insured exclusion should carve back claims by bankruptcy trustees, whistleblowers and derivative suits that the board does not control. Employee-benefit plan claims belong under fiduciary liability, which sits alongside employee benefits programs.
Policy terms to negotiate
- Severability. Knowledge or misconduct of one insured should not be imputed to others, including in the application.
- Order of payments. Side A losses should be paid first when limits are shared.
- Allocation. Clear rules for splitting covered and uncovered loss when not all defendants are insured.
- Defense costs. D&O defense costs normally erode the limit, so limits must allow for long litigation.
- Run-off. On a merger or acquisition, arrange a multi-year run-off (tail) for past acts.
Private companies and nonprofits
Smaller organizations often buy a management liability package that combines D&O with employment practices liability, fiduciary liability and crime coverage under shared or separate limits. Nonprofit boards are a frequent buyer because volunteer directors are reluctant to serve without personal protection. Raising capital, taking on debt, planning an IPO or a sale are all good moments to review limits.
How to buy D&O coverage
Underwriters will ask for financial statements, ownership and board structure, claims history, planned transactions and governance practices. The policy is written on a claims-made basis, so notify any circumstance that might lead to a claim before renewal. Related lines worth reviewing at the same time are cyber insurance and professional liability. See the D&O category for an overview. Policies are issued by licensed insurers and placed through licensed producers in your state; request a quote to compare options.