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Insurance explained
D&O policy features are the definitions, extensions, exclusions and conditions that decide whether a directors and officers policy pays a particular claim. They matter because two policies with the same limit and similar premiums can respond very differently.
Part of: Commercial insurance
In short
When comparing D&O policies, read the wording rather than the summary. The features that most often decide a claim are the definitions of claim and wrongful act, how Sides A, B and C are structured, severability and non-imputation, allocation between covered and uncovered matters, cover for investigations and extradition, outside directorships, run-off on sale, the insolvency exclusion, the retention and the order of payments. A broker can lay these out side by side so the board can see which differences matter for its own risks, subject to each insurer's terms.
A D&O policy protects directors and officers against personal liability for wrongful acts in their role, and usually reimburses the company where it indemnifies them. Directors owe duties under Part 10 of the Companies Act 2006, and Chapter 7 of that Part allows a company to buy insurance for them while restricting how far it can exempt or indemnify them directly.
Most D&O policies are written on a claims-made basis with an aggregate limit shared by every insured person. Because the limit is shared and wordings vary widely, the features below are worth comparing line by line. For a broader overview see directors and officers insurance explained.
Definition of claim. A narrow definition may cover only written demands for compensation and civil proceedings. A broader one commonly includes criminal proceedings, regulatory and official investigations, formal interviews, extradition proceedings and requests to toll a limitation period. This definition largely decides whether cover starts early in a dispute or only once it is litigated.
Definition of wrongful act. Usually any actual or alleged breach of duty, neglect, error, misstatement, misleading statement or omission in the insured capacity. Check that it applies to all the roles your people hold, including outside directorships.
Insured persons. Compare whether the definition includes past and future directors, shadow and de facto directors, employees named in a claim, spouses and estates, and employees acting in a managerial capacity.
Continuity and prior acts. Check whether the policy covers wrongful acts committed before inception, or only from a set date, and how the prior and pending litigation date is fixed. When moving insurers, these dates should usually carry over from the expiring policy so that past board decisions stay protected. A notified circumstance should sit with the insurer that received the notice.
Territory and jurisdiction. Many UK wordings are worldwide, but some restrict claims brought in the United States or Canada, or apply a different retention there. If the company has overseas subsidiaries, investors or customers, confirm where claims can be brought and whether locally admitted policies are needed in any country.
Change in control. Most wordings say that if the company is acquired or merges, cover continues only for wrongful acts before the transaction. Compare what counts as a change in control, whether run-off is automatic and whether the premium for it is fixed in advance.
| Feature | What to look for | Why it matters |
|---|---|---|
| Side A, B and C | Side A for individuals, Side B reimbursing the company, Side C entity cover if needed | Side A protects directors when the company cannot pay; see Side A, B and C |
| Severability and non-imputation | The proposal and conduct of one director not imputed to others | Innocent directors keep cover; see severability clauses |
| Allocation | A fixed or agreed basis for splitting covered and uncovered loss | Avoids disputes where a claim mixes insured and uninsured parties |
| Investigation costs | Cover for formal and informal investigations, interviews and dawn raids | Often the first cost a director faces; see defence costs and investigations |
| Extradition | Costs of resisting extradition proceedings | Relevant to directors with overseas exposure |
| Outside directorships | Excess cover for roles on other boards at the company's request | See outside directorships |
| Run-off on sale | Automatic run-off if the company is acquired, and its length | See run-off on sale or retirement |
| Insolvency exclusion | Ideally none, or limited to the entity | Claims often rise after insolvency; see D&O and insolvency |
| Retention | Nil for Side A, set level for Side B and C | Directors should not pay a retention personally |
| Order of payments | Individuals paid before the company | Protects directors if the limit is stretched |
Beyond the headline features, compare how these exclusions and conditions are drafted:
The proposal also counts. The Insurance Act 2015 duty of fair presentation applies to D&O, and severability of the proposal protects directors who did not know of an inaccuracy.
These examples are illustrative only and do not describe real companies or claims.
Illustrative example 1: an investigation. A regulator asks two directors to attend interviews. A wording that treats formal interviews as a claim would usually pay their legal costs from the outset; a narrow wording may not respond until proceedings begin.
Illustrative example 2: an insolvency. After the company enters administration, the administrator brings claims against former directors. Without an insolvency exclusion and with an insured versus insured carve-back for office-holders, the policy would commonly respond under Side A.
Illustrative example 3: a sale. A company is acquired. A policy with automatic run-off protects the outgoing directors for claims about decisions made before completion, rather than leaving cover to the buyer's programme.
Boards often assume that a higher limit means better protection. In practice the definitions, carve-backs and order of payments often matter more, because a large limit that does not respond to a claim is of no help. Equally, a shared aggregate limit can be used up by defence costs in one long matter.
Before buying or renewing, check:
Our guide to buying D&O insurance cost-effectively covers premium factors and structure. Apex arranges D&O insurance for UK companies; a broker reads every enquiry.
Compare the definitions of claim, wrongful act and insured person, the Side A, B and C structure, severability, allocation, investigation and extradition cover, outside directorships, run-off on sale, the insolvency exclusion, the retention and the order of payments. These features usually matter more than small differences in premium.
It sets the priority in which the insurer pays loss when several parties claim under the same limit. It usually requires loss of individual directors under Side A to be paid before company reimbursement or entity cover, so directors are protected if the limit is stretched.
It decides when cover starts. If investigations, interviews or extradition proceedings fall within the definition, directors can get legal support early. If the definition is narrow, the policy may only respond once civil or criminal proceedings start, by which time significant costs may already have been incurred.
It often can, provided there is no insolvency exclusion and claims by administrators or liquidators are carved back from the insured versus insured exclusion. Side A cover is particularly important, because the company will usually be unable to indemnify its directors at that stage.
Allocation is how loss is split when a claim involves both covered and uncovered matters or parties, such as a claim against a director and an uninsured company. Some wordings fix a basis in advance, which reduces the risk of a dispute with the insurer when the claim arises.
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Start a D&O quote Request a callbackApex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information, not advice on your individual circumstances, and it does not guarantee that cover will be available or on what terms.
