Editorial note: This educational article is not insurance, legal, or financial advice. Policy terms, underwriting, premiums, and regulations vary by carrier and location.
Directors and officers insurance—often shortened to D&O—is a core part of risk management for many growing companies and startups. As your business expands, your board members, executives, and sometimes the company itself face greater legal exposure from investors, regulators, employees, competitors, and customers. This article explains how D&O coverage works, common policy structures, typical exclusions and pricing drivers, and practical steps founders and boards can take to obtain appropriate protection.
What directors and officers insurance (D&O) covers
D&O insurance is designed to protect individual directors and officers, and in some cases the company, from claims alleging wrongful acts in management. Common claim triggers include alleged breaches of fiduciary duty, wrongful termination or other employment practices claims, securities claims (for companies with external investors), regulatory investigations, and merger-and-acquisition disputes. D&O policies typically pay defense costs, settlements, and judgments—subject to policy limits and exclusions—on behalf of the insureds.
Why growing companies and startups need D&O coverage
As companies grow, they attract attention from outside stakeholders: venture investors, lenders, customers, and regulators. Startups and early-stage companies often face specific D&O risks such as investor-derived litigation (for example, disputes over capital raises or valuation), employment claims as teams scale quickly, and fiduciary challenges during fundraising or M&A. Many investors and board members will ask for D&O protection before joining the board or closing a financing round, so having a policy can be a practical requirement for growth—even if it’s not legally mandated in your state.
Understanding policy structure: Side A, B, and C
D&O programs are commonly described in terms of three components. Side A protects individual directors and officers when the company cannot indemnify them (for example, if the company is insolvent). Side B reimburses the company when it does indemnify its directors and officers. Side C, sometimes called “entity coverage” or “securities coverage,” protects the company itself against certain securities claims or derivative suits. Not all policies provide full Side A/B/C protection; startups should confirm which sides are included, and consider standalone Side A or excess layers where board members require individual protection.
Limits, retentions, exclusions, and defense costs
Policy limits set the maximum the insurer will pay for covered claims. Retentions (or deductibles) are amounts the company or insured must cover before the policy pays. Another important distinction is whether defense costs are paid within (eroding) or outside (non-eroding) the aggregate limit—this affects how quickly limits can be consumed. Common exclusions include fraud, criminal acts, intentional illegal acts, and certain ERISA claims; employment-related exclusions may apply or be broader under Employment Practices Liability Insurance (EPLI). When assessing a quote, review how the policy treats defense control (who directs litigation strategy) and whether insurers require consent to settle.
Pricing, underwriting, and eligibility for startups
There is no single premium formula: insurers underwrite D&O based on company stage, revenue, industry, funding history, claims or litigation history, governance practices, and the backgrounds of directors and officers. A pre-revenue seed-stage startup will often have different pricing and availability than a late-stage company or public firm. Factors that typically increase cost include complex capitalization tables, prior legal claims, volatile industry sectors, and public filings. Conversely, strong governance practices (experienced independent directors, clear bylaws, and documented conflicts-of-interest procedures) can favorably influence underwriting. Some insurers and coverages may be unavailable for companies in certain regulated industries or with specific risk profiles.
How to buy D&O insurance and manage underwriting
Buying D&O insurance usually starts with a detailed application that asks about corporate structure, capitalization, funding rounds, current claims or notices, board composition, and corporate governance. Be prepared to disclose prior lawsuits, regulatory inquiries, and related-party transactions—non-disclosure can jeopardize coverage. Work with a broker or agent who understands D&O for startups to help package the application, explain exclusions, and negotiate terms. You can also request a Side A-only policy if individual protection is a priority for directors. For tailored guidance, consider taking next steps to speak with an insurance professional and, when appropriate, consult a licensed attorney about specific legal exposures.
Practical checklist for startups evaluating D&O coverage
- Identify who needs protection: individual directors, officers, and the entity.
- Confirm which coverage sides (A, B, and/or C) are included and whether Side A is adequate.
- Review limits and whether defense costs erode the limit.
- Ask about retentions, settlement control, and consent-to-settle provisions.
- Disclose prior claims, regulatory contacts, and capitalization details on the application.
- Compare multiple policy forms and endorsements, not just price.
- Document governance improvements (independent directors, formal board minutes, conflict policies) before renewal.
Bottom line
D&O insurance is a practical tool to protect leaders and, in some cases, the company itself from management-related claims that become more likely as a business grows. Coverage can be complex—policy structure, limits, retentions, exclusions, and pricing vary widely by insurer and by location—so it’s important to compare policy documents carefully. Talk with a knowledgeable broker or agent, and consult legal counsel if you need advice about specific exposures or regulatory requirements. A well-structured D&O program can help attract and retain directors and investors by addressing a key area of personal and corporate risk.
Last reviewed for general educational accuracy: 2026-09-10. Update this post when applicable laws, policy forms, or market conditions change.
