Directors and officers insurance
Directors and officers insurance is commercial liability coverage for claims alleging that directors, officers or other covered managers committed wrongful acts in their corporate roles, such as negligent acts, omissions, misstatements or misleading statements. Depending on the policy, it can pay defense costs, settlements or judgments for the individuals and the organization.
Also called: d&o, d&o insurance, directors and officers liability insurance
D&O insurance responds when shareholders, employees, a government agency or others accuse the people running an organization of mismanaging it, as the Connecticut Insurance Department glossary (opens in a new tab) describes the exposure. Depending on how the policy is built, it can protect the individuals, the company or both. Most of what it pays depends on the limit, the retention, how defense costs are treated and when the claim is reported.
How a D&O claim draws on the limit
The NAIC describes director and officer liability as coverage when a director or officer is alleged to have committed a negligent act or omission, or a misstatement or misleading statement, according to its 2026 quarterly statement instructions (opens in a new tab). One company's D&O program filed with the SEC carries a $20 million aggregate limit and a maximum deductible of $250,000, per this SEC exhibit (opens in a new tab). Those are company-specific figures, not a small-business average. The arithmetic below applies them to an illustrative $1 million covered loss.
Hover or tap a row to highlight it.
| Step | Amount |
|---|---|
| Covered defense, settlement and judgment loss | $1,000,000 |
| Retention or deductible the insured pays | $250,000 |
| Insurer pays ($1,000,000 minus $250,000) | $750,000 |
| Aggregate limit left ($20,000,000 minus $750,000) | $19,250,000 |
If defense costs sit inside the limit, legal bills shrink what is left for a settlement or judgment. If they sit outside it, the policy may pay covered defense costs without reducing the stated limit, subject to its wording. A claim that is excluded, falls outside the policy period or is not reported as required may get no payment at all.
Coverage parts and terms that change the payout
Each coverage part decides who gets paid.
- Side A pays covered loss of individual directors and officers when the company cannot indemnify them.
- Side B reimburses the company for amounts it indemnifies or advances on their behalf.
- Side C covers the entity itself for specified claims, commonly securities claims for public companies, and is not automatically part of every private-company form.
The limit can apply per claim, in the aggregate or as a shared limit across coverage parts. Public filings show negotiated examples from $5 million, as in another SEC exhibit (opens in a new tab), to $20 million, not a standard.
D&O policies are commonly claims-made, so the policy that generally responds is the one in force when a claim is first made and reported as required, subject to any retroactive date and prior-and-pending litigation exclusion, according to the New York Department of Financial Services filing instructions (opens in a new tab). Extended reporting, or tail coverage, gives more time to report claims after the policy ends; one public agreement provides seven years of runoff coverage, per this SEC exhibit (opens in a new tab).
Where D&O shows up on paper
D&O is a commercial or management-liability coverage, not a standard part of a personal auto, homeowners, renters or life policy. It may be a stand-alone policy or combined with employment practices liability, fiduciary liability, crime or other executive coverages in a management-liability or commercial package policy. A general liability insurance policy or business owner's policy does not include D&O unless it expressly says so.
You will meet the term on a commercial quote or application, a binder, and the declarations page, which lists limits, retentions, the policy period and coverage parts. The insuring agreement names who is insured and what triggers coverage. It also appears on renewal proposals and, after a claim, in a reservation-of-rights letter, defense letter or coverage decision.
How New York and Connecticut affect D&O policies
New York limits how defense costs can be handled. Regulation 107 (11 NYCRR Part 71) (opens in a new tab) says a liability policy may not contain a provision that reduces limits by legal defense costs, applies defense costs against the deductible or otherwise limits defense-cost coverage. A D&O policy may not place the duty to defend on the insured instead of the insurer, according to a DFS legal opinion (opens in a new tab). Insurance Law § 3420 (opens in a new tab) requires specified liability policies to let an injured party sue the insurer for an unsatisfied covered judgment, within limits, after the required notice period. Business Corporation Law § 727 (opens in a new tab) lets corporations buy insurance for directors and officers when indemnification is unavailable, subject to its conditions.
Connecticut lets a corporation buy and maintain insurance for a director, officer, employee or agent against liability in that role, whether or not it could indemnify that person, under Conn. Gen. Stat. § 33-1123 (opens in a new tab). Neither state requires every business to carry D&O, but a contract, grant, lender or investor can. One Connecticut Department of Housing grant manual (opens in a new tab) required $1 million per occurrence of D&O liability for its program, with an exception for limited liability corporations and limited partnerships.
Questions to ask an agent or insurer
These turn the coverage parts into terms you can compare.
- Which people and entities are insured, and in what capacities? Directors, officers, managers, trustees, employees, the company and outside directorships are covered only if the policy defines them as insureds.
- Is the policy claims-made, what is the retroactive date, and what is the reporting deadline? A claim can turn on when it was first made, when it was reported and when the alleged act happened.
- Are defense costs inside or outside the limit, and is there a retention for the company and for individuals? Legal fees may reduce what is left for settlement, and the retention sets your first payment.
- What do Side A, Side B and Side C cover here, and which claims are excluded? Each part can carry different limits and exclusions.
- What must I do right after receiving a demand, subpoena, lawsuit, investigation notice or circumstance that could become a claim? Notice, consent, cooperation and settlement provisions can affect coverage.
Frequently asked questions
Board members and founders ask these.
Is D&O insurance the same as errors and omissions insurance?
No. D&O addresses management and governance decisions, while E&O or professional liability insurance addresses errors in services provided to clients, such as work by physicians, attorneys or architects. The New York Department of Financial Services (opens in a new tab) treats officer and director liability and professional liability as separate exposures, and one policy does not replace the other.
What does D&O usually exclude?
Policies may exclude fraud, personal profit, deliberate misconduct, bodily injury, property damage, professional services, employment practices or other matters. The policy's own definitions of "claim," "wrongful act" and "loss" decide whether a dispute qualifies.
Can a renewal change my D&O coverage?
Yes. A renewal can change the limit, retention, retroactive date, exclusions, defense-cost treatment or prior-and-pending litigation date, so compare the new declarations with the old.