Insurance Curator Directors and Officers (D&O) liability insurance is essential protection for corporate leadership in the United States—yet the policy is only as strong as what it actually covers. Exclusions define the holes in coverage, and for boards in New York, California, Texas and other U.S. jurisdictions, understanding them can be the difference between a defended claim and a personal liability exposure. This guide explains the top 15 D&O exclusions, their real-world impact, negotiability, and what to do about them.
Why exclusions matter (brief)
- Exclusions remove insurer responsibility for certain categories of loss.
- Some exclusions are standard; others are negotiable with brokers and carriers.
- The effect is more pronounced for public companies and heavily regulated industries (finance, biotech), particularly in hubs like New York City, San Francisco, and Chicago, where regulatory and securities litigation activity is higher.
Reliable background reading: Insurance Information Institute’s primer on D&O (https://www.iii.org/article/directors-and-officers-d-o-insurance) and Investopedia’s overview of D&O costs and coverages (https://www.investopedia.com/terms/d/directors-and-officers-insurance.asp). For small-business D&O offerings, see Hiscox US D&O product information (https://www.hiscox.com/small-business-insurance/directors-officers-insurance).
Quick comparative snapshot — common carriers and small-business pricing
| Carrier | Typical U.S. focus | Small-company starting annual premium (typical) | Notes on exclusion flexibility |
|---|---|---|---|
| Hiscox | Small & mid-size private companies | $300–$1,500 (small entities) [1] | Flexible on carve‑backs for EPL; more standardized on fraud exclusions |
| Chubb | Middle-market to large, public companies | $5,000–$50,000+ (mid-market) | Highly negotiable wording for major buyers |
| AIG | Large corporate/public company solutions | $10,000–$100,000+ (public/mid-market) | Broad appetite, negotiates retroactive/prior-acts wording |
Sources: Hiscox product pages and industry overviews (see links above) and market guidance from Investopedia and III.
Top 15 D&O Exclusions — what they mean and how they bite
Below is a concise explanation of each exclusion, typical impact, and whether it’s often negotiable.
1. Fraud, Dishonesty, and Intentional Wrongdoing
- What it excludes: Claims arising from proven intentional unlawful acts, fraud or dishonest gain by insureds.
- Impact: If a court finds intentional fraud, most D&O carriers will deny defense and indemnity.
- Negotiability: Limited; however, directors often secure narrow carve‑backs (e.g., coverage for defense until final adjudication). See more on negotiating carve‑outs: Negotiating Carve‑outs: Strategies to Limit Exclusion Impact in Directors and Officers (D&O) Liability Insurance.
2. Criminal Acts / Punitive Damages
- What it excludes: Criminal penalties, criminal fines, and often punitive damages.
- Impact: Criminal prosecutions are treated separately; criminal fines rarely covered.
- Negotiability: Punitive damages vary by state law; some carriers include punitive damage coverage where insurable.
3. Prior Acts / Known Loss / Prior Litigation (Prior-Acts Exclusion)
- What it excludes: Claims arising from facts known before policy inception.
- Impact: Common for renewals/transactions; a “known loss” can void coverage for a claim that was foreseeable.
- Negotiability: Brokers negotiate retroactive dates and carve‑backs. For guidance: Known‑Loss and Prior‑Acts Exclusions in Directors and Officers (D&O) Liability Insurance: How to Manage Retroactive Exposure.
4. Bodily Injury and Property Damage
- What it excludes: Traditional general liability exposures (BI/PD).
- Impact: D&O is not GL; directors won’t be defended for slip-and-fall claims unless tied to a covered managerial act.
- Negotiability: Not typically included — buy GL/CGL for these risks.
5. ERISA / Employee Benefit Plan Claims
- What it excludes: Fiduciary breaches under ERISA (often a separate fiduciary liability policy is needed).
- Impact: Employee retirement plan mismanagement claims require separate limits.
- Negotiability: Sometimes limited carve‑backs included; recommend standalone fiduciary coverage.
6. Pollution / Environmental Claims
- What it excludes: Environmental contamination suits.
- Impact: Critical for manufacturing, energy and real estate boards.
- Negotiability: Environmental liability policies or carve‑backs for sudden & accidental events are possible.
7. War, Terrorism, and Nuclear Events
- What it excludes: Losses from acts of war, nuclear incidents, or declared terrorism.
- Impact: Rarely invoked but catastrophic if applicable.
- Negotiability: Limited; terrorism coverage often handled through separate backstops.
8. Contractual Liability / Assumed Obligations
- What it excludes: Liability accepted under contract when not otherwise covered.
- Impact: Indemnities and hold‑harmless agreements can create large uninsured exposures.
- Negotiability: Can be negotiated if the contract is standard and the insurer deems the risk acceptable.
9. Intellectual Property Infringement
- What it excludes: IP litigation arising from professional services or product issues.
- Impact: High for tech firms and biotech; dedicated IP/legal expense or cyber coverage may be needed.
- Negotiability: Often excluded from standard D&O; add-ons are rare.
10. Insured vs Insured (IVI) Claims
- What it excludes: Lawsuits by one insured against another (e.g., derivative suits).
- Impact: Critical for intra-company disputes; many policies include IVI exclusions but carve back employment claims.
- Negotiability: Common carve‑backs for employment and shareholder derivative suits are negotiable.
11. Professional Services / Errors & Omissions
- What it excludes: Claims arising from rendering professional services (when a separate E&O policy is expected).
- Impact: Firms offering professional services must buy E&O policies.
- Negotiability: Usually not included within D&O; maintain separate E&O.
12. Bankruptcy / Insolvency-Related Claims
- What it excludes: Some policies limit claims initiated by bankruptcy trustees or creditors.
- Impact: In insolvency, key claims can be prioritized under trustee control — check coverage for bankruptcy proceedings.
- Negotiability: Insurers may negotiate carve‑backs or allocation language.
13. Securities Exclusions Around Public Offerings
- What it excludes: Limited coverage for claims tied to registered public offerings or certain statutory violations.
- Impact: Public companies and IPO candidates should review prospectus-related carve‑outs closely.
- Negotiability: Underwriters and IPO-related exposures might require specialty programs.
14. Regulatory Fines & Penalties / Disgorgement
- What it excludes: Government fines, penalties and disgorgement orders.
- Impact: SEC fines or CFPB penalties may be excluded; state law determines insurability.
- Negotiability: Some carve‑backs available; see discussion on regulatory fines: Regulatory Fines vs Civil Damages: When Exclusions Apply in Directors and Officers (D&O) Liability Insurance.
15. Cyber and Data Breach Claims (Specialized Exclusion)
- What it excludes: Breach-related liabilities and notification costs.
- Impact: Increasingly material for boards of tech and retail firms.
- Negotiability: Most carriers expect a standalone cyber policy; D&O may include narrow cyber-related director claims.
Practical steps to manage exclusion risk (U.S.-focused, actionable)
- Review the policy line-by-line: Use a checklist for exclusions and carve‑backs (see: Checklist for Reviewing Exclusions and Limitations in Your Directors and Officers (D&O) Liability Insurance Policy).
- Negotiate key carve‑backs: For fraud/dishonesty, prior-acts, IVI and bankruptcy exposures, work with brokers (Marsh, Aon) and carriers (AIG, Chubb) to narrow exclusions.
- Buy complementary policies: Purchase ERISA/fiduciary, E&O, cyber and environmental policies as needed.
- Allocate defense costs: Seek favorable allocation and advancement language to ensure defense while disputes over coverage are litigated. See: How Allocation and Carve‑back Clauses Can Restore Coverage in Directors and Officers (D&O) Liability Insurance Disputes.
Final notes on pricing and geography
- Small private U.S. companies (revenues under $10M) often see annual D&O premiums in the $300–$5,000 range for basic $1M limits (Hiscox and similar specialty carriers) while mid-market companies typically pay $10,000–$50,000+, and public companies commonly pay $50,000–$100,000+ depending on industry and litigation profile. (See Investopedia and Hiscox product info above.)
- Expect premiums to be higher in New York and California—markets with active securities litigation and aggressive state regulators—sometimes 10–25% above national averages for comparable risk profiles. Carrier flexibility on exclusions also reflects local litigation climates (e.g., securities class actions in Delaware/NY).
Directors and officers should treat exclusions as part of the underwriter’s risk map: not merely legal text, but real financial exposure. If you’re negotiating coverage for a board in New York City, San Francisco, Houston or Chicago, use experienced brokers and counsel to carve back the most dangerous exclusions and buy complementary policies where D&O leaves gaps.
External resources:
- Insurance Information Institute: https://www.iii.org/article/directors-and-officers-d-o-insurance
- Investopedia D&O overview: https://www.investopedia.com/terms/d/directors-and-officers-insurance.asp
- Hiscox U.S. D&O: https://www.hiscox.com/small-business-insurance/directors-officers-insurance