Directors & Officers (D&O) Insurance for Private Companies
D&O insurance protects the people who run a company, and the company itself, when management decisions are challenged. Claims come from investors, lenders, competitors, customers, and regulators.
For venture-backed startups it is usually a condition of closing a priced round: outside investors will not take a board seat without it. For any private company, it keeps a claim against the business from becoming a claim against the founder's house.
What it covers
- Side A: directors and officers personally, when the company cannot indemnify them
- Side B: the company, when it reimburses its leaders for claims against them
- Side C: the company itself for covered claims against the entity
- Investor, creditor, and regulatory claims alleging mismanagement
What it does not cover
- Fraud and intentional illegal acts, once finally established
- Bodily injury and property damage
- Claims one insured brings against another, with exceptions
- Prior or pending litigation before the policy began
Who needs it
Startups raising outside capital, companies with a board or advisory board, nonprofits, and any private company whose owners want to separate personal wealth from company decisions.
What drives the price
- Funding stage and investor mix
- Revenue, cash position, and burn
- Industry
- Plans for a sale, IPO, or new round
- Claims history
Where owners get caught: the exit
A sale or merger ends the company's D&O policy right when claims from the deal are most likely. A tail (runoff) policy, usually six years, protects the former board after closing, and it has to be negotiated before the deal closes. For founders with meaningful equity, it belongs on the closing checklist alongside tax planning.
After an exit, the founder's personal exposure changes too. See the equity-wealthy household's insurance guide on Trella Insurance.
Directors & Officers: common questions
When does a startup need D&O insurance?
Typically at the first priced round with an outside board member, though some founders buy it earlier. Your lead investor's term sheet will usually specify it.
How much D&O coverage should a startup carry?
$1 to $3 million is common at seed and Series A, increasing with funding and headcount. Investors sometimes set a minimum.
What is management liability insurance?
A package that combines D&O with employment practices and fiduciary liability, and sometimes crime coverage. It often costs less than buying each separately.
Directors & Officers in practice
Illustrative stories of businesses that needed it, and what else their review turned up.
A Condo Board Voted on a Special Assessment. Then an Owner Sued the Board.
A forty-unit condo association's volunteer board approved an expensive envelope repair. An owner who disagreed filed suit against the board members personally, and the association's D&O limit turned out to be the smallest number in its program.
D&OPropertyUmbrellaTechnologyThe Founder Sold His Company. The D&O Policy Ended at Closing.
A founder negotiating the sale of his company had tax advisors, lawyers, and bankers. Nobody had mentioned that the company's D&O coverage would end at closing, right when claims from the deal were most likely.
D&OEPLICyberTechnologyThe Term Sheet Said D&O. The Founders Had Two Weeks.
Two founders were closing a seed round with a new outside board member. The term sheet required directors and officers coverage before closing, and the review found two other policies their first enterprise customer would soon ask for.
D&OCyberE&ONonprofitWhy a Food Bank's Volunteer Board Needed Directors and Officers Coverage
A community food bank relied on volunteers, including its board. When a board member asked whether she could be personally sued, nobody knew the answer. A review found the organization had no D&O coverage at all.
D&OEPLIGLTechnologyA Hardware Startup's First Retail Order Came With an Insurance Requirement
A smart home device startup landed a national retailer. The vendor agreement required products liability coverage the founders had never bought, and the review found two more gaps that investors would ask about next.
GLD&OPropertyTechnologyA Tech Company Went From 25 to 110 Employees in a Year. Its EPLI Stayed at 25.
A venture-backed software company quadrupled its headcount after a funding round, then went through its first layoff. The review found an EPLI policy sized for a startup, and remote employees in states it had never considered.
EPLID&OCyberUsually written alongside
Employment Practices Liability
Wrongful termination, discrimination, harassment, and retaliation claims from employees and applicants.
Learn moreCyber Liability
Ransomware, data breaches, and wire fraud. The claim small businesses are now most likely to file.
Learn moreProfessional Liability (E&O)
Claims that your advice, work, or service cost a client money. Excluded from every BOP and GL policy.
Learn morePart of the programs we build for technology & startups.
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