Outside Directorships and D&O Cover: Whose Policy Responds?

Plenty of executives hold more than one board seat. A finance director joins the board of a joint venture; a founder takes a seat on an industry body; a partner at an investment firm goes onto the boards of portfolio companies; a managing director gives time to a charity as a trustee. Each of these “outside directorships” carries the same personal duties and the same personal liability as the day job — but the insurance position is more complicated, because two policies (or none) may be in play. This page explains how outside directorship liability, usually shortened to ODL, is commonly structured, and what to check before accepting a seat.

What counts as an outside directorship

An outside directorship is a board position an individual holds at the request of, or in connection with, their main employer, at an entity that employer does not wholly control: joint ventures, associate and minority-owned companies, investee and portfolio companies, trade associations, industry bodies, charities and not-for-profits. The individual owes their duties to the outside entity — under the general duties in the Companies Act, directors act for the company on whose board they sit, not for whoever nominated them. That point surprises people, and it matters for insurance: a nominee director sued over an outside board decision is sued personally, in respect of the outside company’s affairs.

Whose D&O policy responds, and in what order

The common structure — and it is a common structure, not a universal rule, because wordings vary — works like this. The outside entity’s own D&O policy responds first: the director is a director of that company, and its policy is the natural primary cover. The home company’s policy then provides an outside directorship liability extension, which covers its executives for their service on outside boards but sits excess of — on top of, and after — the outside entity’s own insurance and any indemnification the outside entity provides. Some ODL extensions respond only for the difference in cover as well as the difference in limits; the mechanics differ between wordings and both policies’ current documents govern.

The practical consequences are worth spelling out. If the outside entity carries decent D&O cover, the executive has two layers of protection. If the outside entity carries none — common among small ventures, early-stage companies and charities — the home company’s ODL extension may effectively be primary, and its terms suddenly matter a great deal. And if the home policy’s ODL extension only picks up directorships the employer has formally approved, a seat accepted informally may fall outside it altogether.

Why investors taking board seats need this

Venture capital and private equity executives who take seats on portfolio company boards are a special case of the same problem, at scale. Each portfolio seat is an outside directorship; each portfolio company’s D&O policy is a separate wording of separate quality, bought by a management team the investor does not control day to day. If a portfolio company fails — statistically a live possibility in any venture portfolio — its policy may lapse or be exhausted precisely when claims are most likely, and an insolvency officeholder will look at the whole board, nominee directors included. Investment firms typically address this with ODL cover across the firm’s executives as part of their own insurance programme, alongside insisting on minimum D&O standards at portfolio level as a condition of investment. Both halves matter: the portfolio company’s policy is the first line, the firm’s ODL the backstop.

Charity and not-for-profit seats

Trustee and non-executive roles at charities are often taken on generously and insured thinly. Charities can buy trustee indemnity cover, but many carry low limits or none, and an executive assuming their employer’s policy will quietly stand behind a charity seat may be wrong — some ODL extensions handle not-for-profit positions differently from commercial ones, or require them to be listed. The exposure is real: trustees owe duties, charities face disputes, and regulators take an interest. Check before you rely.

Questions to ask before accepting an outside seat

As a practical checklist. Does the outside entity carry D&O or trustee cover, with what insurer, wording and limit, and will it show you the policy? Does it indemnify its directors so far as the law allows? Does your home company’s policy contain an ODL extension at all, and does this seat fall within it — is employer approval required, and has it been given in writing? How does the extension respond if the outside entity’s cover lapses or the entity becomes insolvent? Are there exclusions bearing on the outside entity’s sector? And who will keep the position under review as both policies renew? None of these questions is hostile; a well-run outside entity will expect them, and an evasive answer is itself useful information.

As an illustrative scenario only: an executive joins a joint venture board at her employer’s request. The venture later fails and its administrator questions decisions of the whole board. The venture’s own D&O policy responds first if it is still in force; her employer’s ODL extension sits excess, and its response depends on whether the seat was approved and how the wording treats the venture’s insolvency. Every one of those variables was checkable on the day she was asked to join.

Getting the structure right

Outside directorships sit at the junction of two insurance programmes, and the gaps live in the assumptions each side makes about the other. A short review — both wordings, side by side — usually settles the position quickly. Apex Insurance Brokers is an independent, Bristol-based broker authorised and regulated by the Financial Conduct Authority. We review ODL extensions, advise executives and investors taking board seats, and arrange cover where the existing structure leaves a gap. Wordings vary, and the current policy documents on both sides govern what is actually covered.

Frequently asked questions

My employer asked me to take the seat — surely their insurance covers me?

Often, but not automatically. The home company’s policy typically covers outside seats only through an ODL extension, commonly excess of the outside entity’s own cover, and sometimes only for approved directorships. Confirm the extension exists, that your seat is within it, and get the approval in writing.

Does the order of policies really matter if I am covered either way?

Yes. Primary and excess policies can differ in scope, retention and how defence costs are handled, and the excess policy may expect the primary to be maintained. If the outside entity’s policy lapses or its limit is exhausted, the way your home policy steps in — or does not — depends on its wording.

I sit on several portfolio company boards. Do I need separate cover for each?

Usually the structure is one ODL arrangement under your firm’s programme covering your outside seats, sitting excess of each portfolio company’s own D&O policy. Whether every seat is picked up, and on what terms, depends on the wording — a schedule of directorships kept current is the unglamorous thing that makes it work.

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.