Insurance Curator Directors and Officers (D&O) liability insurance is a non‑negotiable line item for U.S. startups raising capital, hiring independent directors, or preparing for an IPO. For VC‑backed companies in high‑risk hubs like San Francisco, New York City, and Austin, the most frequent negotiation battlegrounds are Side A limits (individual director/officer protection) and a short list of vendor endorsements that materially affect litigation exposure and investor acceptability.
This guide covers what to demand, why it matters, and realistic cost trade‑offs for U.S. startups at different stages.
What is Side A and why startups need to prioritize it
- Side A covers loss a director or officer personally suffers when the company cannot or will not indemnify them (e.g., insolvency, bankruptcy, or when indemnification is prohibited by law).
- For startups, Side A is the primary protection for independent directors and founders who face securities claims, regulatory investigations, and derivative suits.
- VCs routinely insist on robust Side A to protect their nominated board members and to make their nominees accept board seats.
Relevant reading: Directors and Officers (D&O) Liability Insurance for Startups: Investor Requirements and Practical Tips.
Recommended Side A limits by stage (U.S. market focus)
Use these as negotiation starting points — actual needs depend on revenue, employee count, jurisdiction (CA, NY, TX), and litigation profile.
| Company Stage | Typical Recommended Side A Limit (USD) | Rationale |
|---|---|---|
| Pre‑seed / early seed (lean, <$5M raised) | $1M – $2M | Protects founders and early advisors; keeps premium manageable in markets like Austin and Denver. |
| Seed / Series A (growing burn; outside investors) | $2M – $5M | VC nominees expect higher limits; covers early securities and employment claims, common in SF/Bay Area. |
| Series B – Pre‑IPO (material revenue, scaling) | $5M – $10M | Increased litigation risk; prepares for aggressive investor and regulator scrutiny in NYC and Boston. |
| Late stage / Pre‑IPO & IPO roadshow | $10M+ (often $15M–$25M) | Public company risk profile; required by underwriters and large institutional investors. |
Cost context: premiums rise as limits increase, but not linearly — market rule of thumb: moving from $1M to $5M often increases premium ~2–4x; $1M to $10M can be ~4–8x depending on risk factors. Market surveys and carrier guidance confirm material premium step‑ups as companies approach IPO or have active claims histories (see carrier market pages below).
Sources: carrier product pages and market commentaries (see Chubb, Hiscox, Marsh links at end).
Key endorsements and terms startups should negotiate (and why)
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Side A Difference in Conditions (DIC) / Side A-only wording
- Ensure Side A operates even if Side B or corporate indemnity exists or is exhausted.
- Ask for a DIC endorsement that prevents carriers from reducing Side A availability due to corporate payments.
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Advancement of Defense Costs
- Require immediate advancement of defense costs to directors and officers, subject to full reimbursement if a final judgment requires it.
- Critical for cash‑strained startups where legal fees can quickly overwhelm individuals.
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Broad Definition of Insured Persons
- Confirm that past, present, and future directors, officers, de facto officers, and key volunteers are covered.
- Include foreign and US‑state domiciled officers when you have hires across NY, CA, TX, etc.
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Run‑off / Extended Reporting Period (ERP)
- Insist on a minimum 3–6 year run‑off (tail) if the entity is being acquired or going public; for bankruptcy risk, negotiate longer.
- Pre‑IPO buyers or underwriters will scrutinize run‑off adequacy.
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Entity (Side C) and Entity Reimbursement Carvebacks
- If buying Side C, confirm limits; if not, secure carvebacks preventing denial of Side A due to corporate settlement payments.
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Securities and Derivative Coverage Wording
- Negotiate to narrow securities exclusion carve‑outs: push for coverage of private company securities claims tied to disclosure failures, offering documents, or director negligence (where insured duties apply).
- Seek removal or limitation of “coverage for sale of securities” exclusions that insurers sometimes apply to late‑stage tech/biotech companies.
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Employment Practices Liability (EPL) Run‑throughs
- If EPL sits with a separate policy, ensure coordination so EPL claims don’t erode Side A limits; request explicit cross‑liability wording or sublimit protection.
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Mergers & Acquisition (Transactional) Protection / Transaction Liability Trigger
- For companies contemplating M&A or an IPO filing, ask for endorsements that preserve coverage during diligence and post‑close claims.
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Investor/VC Representation Endorsements
- VCs frequently require insurance to expressly include representation of their nominated directors and to cover their disclosure liability exposures. See: VC‑Driven D&O Demands: What Venture Capitalists Expect from Directors and Officers (D&O) Liability Insurance.
Negotiation tactics and market levers
- Start with a competitive broker (San Francisco, NYC, Austin brokers know local market appetite). Brokers can pool appetite across Chubb, Hiscox, Beazley, and excess markets.
- Bundle intelligent limits: For many startups, a layered structure (primary Side A $3M + excess $7M) is more affordable than single high limit.
- Use clean claim histories and strong governance to reduce insurer pricing — independent audits, board charters, cyber controls, and employment policies matter.
- Push for insurer-side drafting: Request specific amendments to hostile coverage exclusions; insist on policy language that aligns with VC term‑sheet expectations.
- Prepare documentation: Provide capitalization table, prior claims, SEC interactions, investor list — needed to get favorable terms in NY and CA markets.
Related reading: Escalating Coverage Needs: When to Upgrade Your Directors and Officers (D&O) Liability Insurance During Fundraises.
Pricing reality — carriers and sample market cues (U.S. hubs)
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Hiscox (small business / tech startups) — Hiscox advertises streamlined Management Liability/D&O offerings for small entities with quick online quoting and entry‑level premiums often in the low hundreds to low thousands annually for very small companies with $1M limits (varies by state: CA & NY risk profiles push premiums higher). See Hiscox product page.
Link: https://www.hiscox.com/small-business-insurance/directors-officers-insurance -
Chubb (mid‑market / tech / VC placements) — Chubb is active in the VC/startup space in San Francisco and NYC; pricing is tailored, but expect minimums in the multiple‑thousand dollar range for primary $1M limits and stepped increases for higher limits or adverse risk factors. Chubb’s program details and market commentary are useful to share with prospective investors.
Link: https://www.chubb.com/us-en/business-insurance/directors-and-officers-insurance.html -
Market commentary (capacity & pricing trends) — Brokers like Marsh and Aon report tightening and rate pressure in higher risk classes (late‑stage tech, biotech, SPAC/IPO candidates), with material premium increases for companies with securities exposure or active governmental inquiries. These market reports explain why Side A and securities wording increasingly drive pricing.
Example market overview: Marsh/Aon insights pages for D&O marketplace.
Practical takeaway: a San Francisco Series A tech startup frequently budgets $10k–$40k annually for D&O (combined primary + excess depending on limits), whereas a similar NYC late‑stage/pre‑IPO company budgets $50k–$250k+ as limits and underwriting scrutiny rise. Actual quotes vary widely.
Quick negotiation checklist for founders (U.S. startups)
- Negotiate Side A minimums per your stage (see table).
- Insist on advancement of defense costs and Side A DIC wording.
- Secure broad insured person definitions (past/present/future).
- Get run‑off coverage for transactions and exits.
- Push for narrow securities carve‑outs and maintain coordination with EPL and cyber insurers.
- Share governance documents with brokers early to lower pricing.
Final notes
- Negotiating Side A limits and endorsements is a strategic exercise balancing director protection, investor demand, and premium affordability.
- Use experienced D&O brokers in your region (San Francisco, New York City, Austin) and involve counsel for policy wordings prior to signing term sheets or IPO filings.
External resources
- Hiscox: Directors & Officers Insurance — https://www.hiscox.com/small-business-insurance/directors-officers-insurance
- Chubb: Directors & Officers Insurance — https://www.chubb.com/us-en/business-insurance/directors-and-officers-insurance.html
- Marsh: Global insurance market and D&O insights — https://www.marsh.com/us/insights.html
For more on VC expectations and policy representation, read Representation of VCs and Key Investors in Directors and Officers (D&O) Liability Insurance Policies.