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D&O exclusions
UK D&O insurance usually does not cover proven fraud or illegal personal profit, claims already under way before the policy started, injury and damage, pollution, professional negligence, contractual promises, uninsurable fines, or the company's own liability unless entity cover is bought.
Part of: Directors' and officers' insurance explained
In short
D&O insurance protects directors and officers personally against claims about how they run the company, but it is not a catch-all. Most policies exclude proven fraud and dishonesty, prior and pending litigation, known circumstances, injury and damage, pollution, professional services and contractual liability, and criminal fines. Many also restrict claims by major shareholders and claims brought in the US. Exclusions vary by wording, so the answer for your business sits in your own policy.
Wordings differ, but these exclusions appear in many UK D&O policies.
| Not covered (usually) | Example | Where cover usually comes from |
|---|---|---|
| Proven fraud, dishonesty and illegal personal profit | A director is found to have falsified results to trigger a bonus | No cover; defence costs often paid until a final finding |
| Prior and pending litigation | A claim issued before the policy started | The earlier policy, or run-off cover |
| Known circumstances | A complaint a director knew about but did not disclose | Notifying the policy in force at the time |
| Insured v insured claims | Two co-founders sue each other | Carve-backs for derivative, insolvency and employment claims |
| Bodily injury and property damage | A worker is injured on site | Employers' and public liability |
| Pollution | A leak contaminates neighbouring land | Environmental impairment liability |
| Professional services | A client says the firm's advice was wrong | Professional indemnity |
| Contractual liability | A director's personal guarantee is called in | Usually uninsured; review guarantees before signing |
| Uninsurable fines and penalties | A criminal fine after a conviction | Not insurable; defence costs often covered |
| Major shareholder claims | A dominant investor sues the board | A negotiated threshold or carve-back |
| US claims | US investors sue in a US court | A US extension or separate policy |
| The company's own liability | The company is sued alongside its directors | Side C (entity) cover, often narrow |
Many policies exclude deliberate fraud, dishonest or criminal acts, and profit a director was not legally entitled to. The exclusion usually bites only once the conduct is established by a final judgment or admission, so defence costs are often paid until then and may be repayable afterwards. Scenario: the finance director of a Midlands distributor is accused of inflating stock values. The policy funds her defence; if a court finds dishonesty, the insurer can seek the money back. Severability clauses stop one director's conduct counting against innocent colleagues (see fair presentation and severability).
Claims arising from proceedings that had started before a set date, usually your first D&O inception date, are usually excluded. Scenario: a Leeds software company moves its D&O to a new insurer in March. A shareholder claim issued in January will not transfer. When you change insurer, try to keep the original prior and pending date, and buy run-off cover when the company is sold or stops trading.
Most policies exclude claims arising from circumstances notified under an earlier policy, or known to a director before inception and likely to lead to a claim. Scenario: a care group director receives a former investor's letter alleging misleading statements and says nothing at renewal. When the claim arrives, the new insurer may decline. Notify circumstances to the policy in force at the time; see the prior knowledge condition.
Claims brought by the company or one director against another director are often excluded, to stop collusive claims and boardroom fights. Better wordings carve back shareholder derivative actions, claims by liquidators and administrators, employment claims by directors and whistleblowing claims. Scenario: after a fall-out, the two founders of a Bristol agency sue each other; without a carve-back neither has cover. More in the insured v insured exclusion explained.
Claims for injury, illness, death or physical damage are usually excluded because they belong under employers' liability and public liability. Scenario: a forklift accident injures a warehouse worker; the injury claim goes to the employers' liability policy. Many D&O policies do carve back directors' defence costs in health and safety investigations and prosecutions, which is often where D&O earns its keep (see health and safety prosecutions and D&O).
Pollution claims are usually excluded, sometimes with carve-backs for directors' defence costs and for shareholder claims alleging the board mismanaged environmental risk. Scenario: a leak from a Teesside site contaminates a river. The clean-up and third-party damage claims fall outside D&O; environmental impairment liability is built for that exposure.
D&O covers management decisions, not the services the company sells. Claims that the company's advice, design or work was negligent are usually excluded and belong under professional indemnity insurance. Scenario: an engineering consultancy's client alleges a design error and names the directors. PI should respond; D&O may pick up only a related shareholder claim.
Liability taken on under a contract, such as a personal guarantee, an indemnity or a loan, is usually excluded except where the director would have been liable anyway. Scenario: a director personally guarantees an office lease and the company later fails. The landlord's claim is a debt, not a D&O loss.
Policies usually cover civil fines and penalties only where they are insurable under the law that applies, and exclude the rest. Criminal fines are generally treated as uninsurable. Scenario: a director is convicted of a health and safety offence and fined. The fine is his to pay, although the policy may have funded his defence.
Many policies exclude claims by a shareholder holding more than a stated percentage of the shares, unless the claim is brought without any insured's help. Scenario: a private equity backer falls out with the founders of a portfolio company and sues them for breach of duty. If you have a large investor, negotiate the threshold or ask for a carve-back.
Many UK D&O policies exclude or restrict claims brought in the US or Canada, or under US securities law. Scenario: a Cambridge medtech raises money from US investors who later sue in a US court. Without a US extension, the claim may be uninsured. Ask for the territory and jurisdiction terms in writing.
D&O is mainly cover for individuals. Side A pays directors when the company cannot indemnify them; Side B reimburses the company when it does. Neither covers the company's own liability. Side C, or entity cover, protects the company itself, but often only for securities claims. Scenario: a company and its directors are sued together by an investor; the directors' share is covered, the company's is not. See Side A, B and C explained.
Section 232 of the Companies Act 2006 makes void any provision that exempts a director from liability for negligence, default, breach of duty or breach of trust in relation to the company, and stops the company indemnifying a director against that liability, subject to set exceptions. Section 233 is the key exception: a company may buy and maintain insurance for its directors against those liabilities. That is the legal basis for D&O.
Section 234 allows a company to indemnify a director against liability to third parties, but that indemnity must not cover criminal fines, penalties payable to a regulator for non-compliance, the costs of criminal proceedings in which the director is convicted, or the costs of civil proceedings brought by the company in which judgment goes against the director. Those limits govern the company's indemnity; insurance is governed by the policy and wider law (see directors and the Companies Act 2006).
On criminal fines, the general principle is that public policy does not let a person recover an indemnity for the consequences of their own criminal conduct, so criminal fines are generally treated as uninsurable. The position on some regulatory and strict liability penalties is less settled, which is why policies use "where insurable by law". For FCA-regulated firms, the FCA's rules in GEN 6.1 prohibit insurance that indemnifies any person against an FCA financial penalty, while allowing cover for the costs of defending FCA enforcement action.
See also: D&O for mid-sized companies
Not once fraud or dishonesty is proved. Many policies pay defence costs while the allegation is being fought and apply the exclusion only after a final judgment or admission, at which point costs may have to be repaid.
Generally no. Criminal fines are treated as uninsurable as a matter of public policy, and the Companies Act 2006 stops a company indemnifying a director against them. The policy may still pay the cost of defending the prosecution.
Often not, because of the insured v insured exclusion. Many wordings carve back derivative claims by shareholders and claims brought by liquidators or administrators.
The injury claim itself is usually excluded and belongs under employers' or public liability. Many D&O policies do cover directors' defence costs in a related health and safety investigation or prosecution.
Only partly. Side B reimburses the company when it indemnifies directors. Cover for the company's own liability needs Side C, which is often limited to securities claims.
Many UK policies exclude or restrict US and Canadian claims. Ask for the jurisdiction terms in writing.
Send us your schedule and wording and a broker will tell you where the gaps are, with no obligation. Or call 0117 325 0027.
Ask a broker Start a commercial enquiryApex 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 about common policy exclusions, not advice on your individual circumstances. Wordings differ, so always check your own policy. It does not guarantee that cover will be available or on what terms.
