For many startups and scaleups, Directors & Officers (D&O) insurance is purchased because investors require it. Once secured, it is often viewed as another completed item on a fundraising checklist.
However, D&O insurance is far more than a funding requirement.
When a business faces a shareholder dispute, regulatory investigation, employment claim or financial difficulty, founders, directors and investors can find themselves personally exposed. In those moments, the quality of the policy matters far more than the fact it exists.
The key question is simple: will the policy respond when it matters most?
Today's founders and investors operate in an increasingly complex risk environment. Companies are expected to scale rapidly, navigate changing market conditions and satisfy the expectations of shareholders, regulators, employees and customers.
As organisations grow, disputes relating to governance, fundraising activities, employment practices and strategic decision-making become more common. While D&O insurance is designed to protect directors and officers from personal liability, not all policies provide the same level of protection.
One area that deserves particular attention is the Professional Services or Professional Indemnity (PI) exclusion.
The exclusion is intended to ensure that claims relating to professional negligence are dealt with under a Professional Indemnity policy rather than a D&O policy. However, broad wording can unintentionally create significant coverage gaps.
For many startups, major issues begin with a product failure, service disruption, cyber incident or customer complaint. These events can quickly lead to allegations that management failed to identify risks, implement controls or provide appropriate oversight. Those governance allegations are exactly what D&O insurance is designed to cover.
A carefully negotiated exclusion can help ensure that management liability claims remain protected, rather than being excluded because they stem from an issue involving the company's products or services.
Investors often assume claims will remain at company level. In reality, directors are frequently named personally.
Claims can arise from governance failures, fundraising activities, regulatory investigations, creditor actions, insolvency events and allegations of breaches of fiduciary duty. For this reason, every portfolio company should maintain appropriate D&O insurance, while investor-appointed directors should be clearly included within the definition of insured persons.
Growing businesses should also consider employment-related exposures. As headcount increases, so does the likelihood disputes involve wrongful dismissal, discrimination, harassment, retaliation or whistleblowing allegations. Employment Practices Liability (EPL) cover can provide valuable protection against these increasingly common risks and should be considered as part of a broader D&O programme.
Equally important are disputes between founders, investors and shareholders. Leadership changes, difficult funding rounds, underperformance and failed exits can all lead to complex and costly litigation. Reviewing the policy's "insured versus insured" exclusion is essential to ensure legitimate stakeholder disputes remain covered.
While premium will always be an important consideration, the cheapest policy is not necessarily the best protected.
A strong D&O policy should provide access to defence costs from the outset, allowing directors and officers to secure legal representation immediately when facing investigations, employment disputes or litigation. For many insureds, this is one of the most valuable aspects of the cover.
Businesses should also pay close attention to Side A protection. If a company becomes insolvent or is unable to indemnify its directors, individuals may need to rely on the insurance policy directly. This is often when personal exposure is at its highest and robust Side A cover can provide critical protection.
Ultimately, a well-structured D&O policy should protect investor-appointed directors, respond to founder and shareholder disputes, cover employment-related claims and avoid broad exclusions that could undermine protection when governance allegations arise.
The true value of D&O insurance is not measured at renewal. It is revealed when a company faces one of its most challenging moments.
Price Forbes works with founders, investors and portfolio companies to review existing D&O arrangements, identify potential gaps in cover and negotiate policy wordings that provide meaningful protection.
Whether you're reviewing insurance ahead of a funding round, assessing cover across a portfolio or looking to strengthen protection for directors and investors, our specialists can help ensure your D&O programme is fit for purpose and designed to respond when it matters most.
At Price Forbes, we work with founders, investors and advisors to protect what’s being built, from incorporation to IPO. Our role is to help you transfer risk, unlock capital, and stay focused on growth.
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