D&O Run-Off Cover on a Sale, Solvent Exit or Retirement

Selling the company, winding it up solvently, or stepping down after years on the board all feel like endings. For directors’ and officers’ liability, they are nothing of the sort. Decisions taken during your tenure can be questioned long after you have banked the sale proceeds or cleared your desk — and because D&O insurance is written on a claims-made basis, the policy that was in force while you made those decisions will not be the one that responds. Run-off cover exists to close that gap. This page deals with run-off on a sale, a solvent exit or a retirement; if the company has been dissolved or is heading that way, see our separate page on D&O run-off after dissolution, and keep this page for the happier exits.

Claims-made: past decisions need future cover

A claims-made policy responds to claims first made during its policy period, regardless of when the conduct complained of took place. Flip that around and the exposure becomes obvious: once the policy ends, cover ends — including for everything you did while it was in force. A director who retires, or a company that is sold and stops renewing its own policy, is left with years of past decisions and no policy sitting in the future to receive any claim about them. Run-off cover (sometimes called an extended reporting period or discovery period) keeps a policy alive to accept claims made after the trigger event, but only in respect of conduct before it. It is not new cover for new activity; it is a long tail for the old activity.

Run-off on a sale: change-of-control clauses

Almost every D&O wording contains a change-of-control provision. Described generically: when the policyholder is acquired, merges, or control passes to a new owner, the policy typically converts automatically to run-off from the point of the transaction — it continues until expiry for claims arising from pre-completion conduct, but stops covering anything the directors do afterwards. The buyer’s policy is expected to pick up the go-forward risk. The precise trigger, the mechanics and what (if anything) happens at the next renewal all vary by wording, so the clause should be read early in any sale process, not discovered at completion.

In practice, sellers usually negotiate a dedicated run-off policy as part of the transaction — often paid for by a single premium at completion — so that the outgoing directors have certain, ring-fenced cover for their pre-sale conduct rather than relying on the buyer’s goodwill or the buyer’s policy. Who funds it, and whether the sale agreement obliges the buyer to maintain it, are deal points worth raising alongside the warranties, not after them. As an illustrative scenario only: a founder sells her company, and some time later the buyer alleges that pre-sale management decisions caused it loss. Her old policy expired at the first renewal after completion; whether she has a funded defence depends entirely on whether run-off was put in place at the deal.

Run-off on retirement or resignation

A director who retires from a continuing, healthy company is usually in a better position: most wordings continue to cover former directors for their past conduct, so long as the company keeps renewing the policy. The catch is the word “so long as”. The retired director no longer controls the renewal decision, the choice of insurer, the limit, or whether the company survives at all. If the company later lapses the cover, is sold, or fails, the protection the retiree was relying on can disappear without them ever being told. Options worth discussing before you leave include a contractual commitment from the company to maintain cover for former directors, confirmation of how the wording treats retired directors, and — in some circumstances — personal or dedicated run-off arrangements. The right answer depends on the company’s stability and your appetite for relying on it.

Run-off on a solvent winding-up

When a company has run its course and the shareholders wind it up solvently, the same logic applies: liability for past decisions survives the company’s tidy ending, and claims can still be made against former directors afterwards. Arranging run-off cover before the company is wound up — while there is still a policyholder to buy it and money to pay for it — is far easier than trying to do anything about it later. Directors planning a members’ voluntary liquidation should put D&O run-off on the checklist alongside the tax clearances.

How long should run-off last?

There is no single correct duration, and we deliberately do not prescribe one. The judgement is usually anchored to limitation considerations — the periods within which different kinds of claim can be brought under English law — together with the nature of the business, the profile of potential claimants and the pricing of longer periods in the market at the time. Claims involving certain allegations can have longer effective horizons than others, and limitation is a legal question on which advice should be taken for anything contentious. What we can say generally is that run-off is usually bought as a single fixed period at the outset, that extending it later can be difficult or impossible, and that the cost of a longer period at inception is often modest relative to buying certainty. Your broker should present the realistic options and the reasoning, and the decision should be recorded.

Getting it arranged

Run-off is a small piece of paper that does a great deal of work, and it is easiest to arrange while the company is solvent, insured and mid-transaction — not after everyone has moved on. Apex Insurance Brokers is an independent, Bristol-based broker authorised and regulated by the Financial Conduct Authority. We arrange run-off D&O for sales, retirements and solvent exits, and we will tell you plainly what your existing wording already does before selling you anything it does not need. Wordings vary, and your current policy documents govern.

Frequently asked questions

Does my existing policy automatically go into run-off when the company is sold?

Many wordings convert to run-off on a change of control for pre-completion conduct, but the trigger, duration and mechanics differ from policy to policy. Read the change-of-control clause early in the deal and take advice; do not assume the automatic position gives you the protection you would choose.

I retired years ago — am I still covered by my old company’s policy?

Possibly. Most wordings cover former directors for past conduct while the policy keeps being renewed, but you are relying on the company continuing to buy it. If the company has since been sold, wound up or has lapsed its cover, your position may have changed without notice. It is worth finding out rather than assuming.

Is run-off cover expensive?

It is usually bought for a one-off premium fixed at the outset, and pricing depends on the company’s history, sector and the period chosen. We do not quote figures on this page because they vary case by case; the honest general point is that certainty at exit tends to look cheap against the cost of defending even a modest claim without cover.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy; wordings vary and your current policy documents govern what is and is not covered.