Directors' and officers' insurance for a first board
A director joining a new board should ask one question early: who pays if I am sued? The answer depends on decisions the company makes well before it lists.
Know what each part of the policy does
A directors' and officers' policy has three parts. Side A pays directors and officers directly when the company cannot or will not indemnify them. Side B reimburses the company after it has indemnified them. Side C covers the company itself, usually for securities claims. Only Side A protects the individual when the company is unable to help.
Know when indemnity fails
Company indemnity fails in three situations: the company is insolvent, the board declines to indemnify, or the law bars it, as it does for some derivative actions that need court approval. Those are the moments when directors most need protection.
Buy dedicated Side A cover when the board forms
I recommend a dedicated Side A layer from the day the board is formed. It should be non-rescindable, carry no retention, and sit with a different insurer from the main program, so it responds even if the main policy is disputed.
Put three instruments in place
A statute that permits indemnity protects nobody by itself. Directors need an indemnity by-law, a signed indemnity agreement for each director, and the insurance.
Read the wording closely
The wording decides whether a claim is paid, so review it with more care than the price. Check these provisions:
- The insured-versus-insured and major shareholder exclusions.
- The conduct exclusions and whether they are severable between directors.
- The professional services exclusion, which matters when a director also consults to the company.
- Prior acts cover and the retroactive date.
- The order in which the policy pays claims.
- Whether a committee chair who is not a director counts as an insured person.
Start early
The prospectus is the event insurers price most heavily. Start work with a broker 18 to 24 months before a planned listing. Underwriters form their view from independence, accounting quality, related-party dealings and founder control, and the first submission shapes pricing for years. Negotiate full prior-acts cover, or agree the run-off price at the start, while you still have leverage.
Check every jurisdiction
Where operations sit in another country, local law may require a locally admitted policy and may treat indemnity differently. Check each jurisdiction where a director could be sued.
What every director should ask for
Before accepting a seat, ask to see the policy wordings, a signed indemnity agreement, the retroactive date, and who decides whether the insurer releases funds. These are reasonable requests, and a well-run company will be ready for them.