Insurance Curator Buying Directors and Officers (D&O) insurance in the United States—especially if your company is incorporated in Delaware or operates in enforcement-heavy jurisdictions like New York, California (San Francisco/Los Angeles), or Texas (Houston/Dallas)—requires more than picking a carrier and limits. The policy language that governs exclusions, limitations and carve‑outs determines whether the policy will respond when a claim hits. Below are practical, actionable steps to reduce exclusion risk before you bind coverage.
Why exclusions matter in D&O policies (U.S. focus)
D&O exclusions can defeat coverage even when a claim appears squarely within a policy’s insuring agreement. Common exclusion themes include:
- Fraud, criminal acts and intentional wrongdoing
- Prior acts / known-loss / retroactive date exclusions
- Contractual liability and securities exclusions
- Regulatory fines and penalties
- Industry‑specific carve‑outs (e.g., financial institutions, startups)
For a catalog of common clauses and plain‑English explanations, see Top 15 Exclusions in Directors and Officers (D&O) Liability Insurance and What They Really Mean.
Practical steps to reduce exclusion risk before you buy
1) Start with a targeted risk audit
- Inventory current and past litigation, regulatory inquiries, and board minutes.
- Identify any known losses or potential claims that could be carved out as prior acts.
- Document remediation steps and corporate governance improvements to show underwriters.
See practical handling of retroactive exposure in Known‑Loss and Prior‑Acts Exclusions in Directors and Officers (D&O) Liability Insurance: How to Manage Retroactive Exposure.
2) Involve an experienced D&O broker and counsel early
- Use a broker with D&O placement experience in your industry and state (e.g., New York and Delaware market nuances differ from California).
- Engage coverage counsel to redline policy forms before binding—many disputes stem from vague exclusion language.
- Recommended broker names commonly used by U.S. boards: Marsh, Aon, Lockton, Gallagher. These brokers help negotiate policy wordings with carriers such as Chubb, AIG, Zurich, and Hiscox.
3) Negotiate carve‑outs and carve‑backs (proactively)
- Seek express carve‑backs to fraud or criminal exclusions for defense costs until there is a judgment or admission.
- Negotiate limited carve‑outs for regulatory enforcement defense costs where state law allows.
- Practical negotiation strategies are detailed in Negotiating Carve‑outs: Strategies to Limit Exclusion Impact in Directors and Officers (D&O) Liability Insurance.
4) Confirm advancement, allocation and settlement consent language
- Advancement: Ensure defense costs are advanced promptly to directors subject to clawback only if there is a final adjudication.
- Allocation: Insist on clear allocation language when claims include both covered and excluded matters.
- A useful resource: How Allocation and Carve‑back Clauses Can Restore Coverage in Directors and Officers (D&O) Liability Insurance Disputes.
5) Tackle criminal/fraud exclusions strategically
- For companies at higher regulatory risk (e.g., fintechs in New York, biotech firms in California), obtain a defense-cost carve‑out or a “no‑rescue” letter from management indemnifiers where feasible.
- Consider D&O market options that provide limited protection for regulatory investigations (varies widely by carrier).
6) Lock down retroactive date and prior-acts protection
- If you have historical exposures or recent events of regulatory interest, negotiate a retroactive date that precedes those events or secure prior‑acts coverage endorsements.
- Failure to do so can leave boards unprotected for legacy liabilities.
7) Tailor the policy to industry-specific exposures
- Financial institutions, startups, and healthcare entities face specialized carve‑outs. Confirm whether your carrier’s standard form contains industry exclusions and negotiate alternatives if necessary.
- For examples, see Specialized Exclusions for Financial Institutions and Startups in Directors and Officers (D&O) Liability Insurance.
8) Benchmark pricing vs. retention to assess tradeoffs
Premiums, retentions and limits are tied to language. Below is a representative U.S. market comparison (illustrative ranges; actual pricing varies by company risk profile and location):
| Carrier (U.S.) | Typical Target Client | Illustrative Annual Premium Range (U.S.) | Typical Retention / Deductible |
|---|---|---|---|
| Hiscox (small business focus) | Small privately-held companies, startups | $1,000 – $5,000 | $0 – $25,000 |
| Chubb (mid-market to large) | Middle-market and large privately-held firms | $25,000 – $250,000+ | $25,000 – $250,000 |
| AIG / Zurich (national/global) | Public companies, large private companies | $100,000 – $1,000,000+ | $100,000+ |
Sources: Insurer product pages and market guides (see Sources). These are indicative ranges—your exact premium depends on jurisdiction (e.g., NY/CA can be higher), revenue, claims history, and policy language.
9) Get indemnity and D&O-friendly employment agreements for key officers
- Ensure executive employment agreements include board-approved indemnification and cooperation covenants.
- Where permissible, secure side‑letters or indemnity agreements that support coverage while remaining enforceable under Delaware and state corporate law.
10) Require a pre‑binding exclusions review checklist
Before you bind coverage, run through a checklist:
- Retroactive date confirmed and prior acts addressed
- Fraud/criminal exclusions and any defense carve‑backs negotiated
- Advancement, allocation and settlement consent language reviewed by counsel
- Industry carve‑outs identified and mitigated
- Documented disclosures to carrier (accurate and complete)
A ready checklist is available at Checklist for Reviewing Exclusions and Limitations in Your Directors and Officers (D&O) Liability Insurance Policy.
Quick scenarios (New York / Delaware / California)
- Delaware-incorporated tech startup with VC investors: negotiate robust prior‑acts and investor consent; investors commonly insist on D&O limits and side‑letter indemnities.
- Public company headquartered in New York: expect heightened securities and regulatory exposures; push for advancement and allocation language and defense-cost carve‑backs.
- California biotech with FDA interactions: regulatory inquiry exclusions can be fatal—seek limited regulatory investigation defense coverage and explicit carve‑backs.
Final notes: documentation wins the day
- Document all underwriting presentations, remedial actions, board minutes and counsel opinions. These materials are persuasive in underwriting and claims negotiations.
- Treat the D&O purchase as a governance exercise—policy language is part of your risk management program.
Sources
- Investopedia — D&O insurance overview and cost context: https://www.investopedia.com/terms/d/d-and-o-insurance.asp
- Hiscox — D&O insurance for small businesses (product overview): https://www.hiscox.com/small-business-insurance/directors-and-officers-insurance/
- Chubb — Directors & Officers Liability Insurance (product overview): https://www.chubb.com/us-en/business-insurance/directors-and-officers.html
Internal reading to build your negotiation playbook:
- Top 15 Exclusions in Directors and Officers (D&O) Liability Insurance and What They Really Mean
- Negotiating Carve‑outs: Strategies to Limit Exclusion Impact in Directors and Officers (D&O) Liability Insurance
- Known‑Loss and Prior‑Acts Exclusions in Directors and Officers (D&O) Liability Insurance: How to Manage Retroactive Exposure