Here's something most people don't realize about being on a company's board or serving as an executive: you can be personally sued for the decisions you make at work. And we're not talking about small claims. Securities lawsuits settled for an average of $26 million in 2024. Without the right protection, that liability could fall directly on you—threatening your home, your retirement savings, and everything you've worked to build.
That's where Directors and Officers (D&O) insurance comes in. Think of it as a financial shield between your personal assets and the lawsuits that come with corporate leadership. Whether you're on the board of a small tech startup or serving as CFO of an established company, D&O insurance is designed to protect you when someone claims you made a bad decision, misrepresented the company's finances, or breached your fiduciary duty.
What Directors & Officers Insurance Actually Covers
D&O insurance covers you when someone alleges you've committed a "wrongful act" in your role as a director or officer. This includes mismanagement, breach of fiduciary duty, misleading statements, regulatory violations, and failures in corporate governance. The policy covers your legal defense costs and any settlement or judgment against you—protecting your personal finances when the company can't or won't indemnify you.
The coverage typically breaks down into three parts, known as "sides." Side A covers you personally when the company legally cannot indemnify you. Side B reimburses the company when it does indemnify you for covered claims. Side C, which differs significantly between private and public companies, covers claims made directly against the company itself.
Here's where it gets interesting for private companies: your Side C coverage is much broader than what public companies get. While public company policies limit entity coverage exclusively to securities claims, private company D&O policies can cover antitrust claims, employment disputes, consumer lawsuits, and more. It often acts as a catch-all for claims not covered by your other business insurance policies.
Why You Need This Protection (Even at Small Companies)
You might think D&O insurance is only for Fortune 500 executives, but that's a dangerous misconception. Securities class action filings reached 222 cases in 2024, and private companies face their own unique risks. Employment-related claims and shareholder lawsuits can hit companies of any size, with median payouts for fiduciary duty cases exceeding $3 million.
Consider what happened to a small electronics company whose directors hired away employees from a larger competitor. The bigger company sued the directors personally for stealing trade secrets and customer lists. The case settled for over $1 million, with defense costs hitting $500,000. Without D&O insurance, those directors would have paid out of pocket.
Or take the common scenario where a company is sold. If the buyer later claims the directors used false profitability information to close the deal, those former directors can face personal liability—even after they've moved on. D&O insurance follows you for claims arising from your time in leadership, providing peace of mind long after you've left the role.
The risks are expanding, too. AI-related securities filings doubled in 2024, and ESG litigation is accelerating. Directors are being held accountable for everything from cybersecurity breaches to climate-related disclosures. The global litigation funding industry is projected to grow nearly 10% annually through 2028, which means more lawsuits with higher settlement costs. In this environment, going without D&O coverage is like driving without car insurance—you might get away with it for a while, but one accident could ruin you financially.
Private Company vs. Public Company Coverage: What You Should Know
If you're serving at a private company, your D&O policy works differently than it would at a publicly traded corporation—and in many ways, you're getting better coverage. The most significant difference is how the policy handles claims against the company itself.
Private company policies typically include a duty to defend provision. This means when you're sued, the insurance company appoints a lawyer and pays the legal bills directly as they come in. Public company policies, by contrast, work on a reimbursement basis—you pay the defense costs upfront and get reimbursed later. For most people, having the insurer cover costs immediately is a huge advantage.
Private company policies also tend to cover more people. Beyond current and former directors and officers, coverage often extends to advisory board members, de facto directors, managers, and sometimes even regular employees acting in a managerial capacity. This broader definition of "insured persons" means more of your team has protection.
The tradeoff is that private policies come with broader exclusions. You'll typically see a wide "insured vs. insured" exclusion that bars coverage when one insured person sues another (think: shareholder derivative suits). Public company policies have narrower exclusions. But for most private company leaders, the broader coverage outweighs these limitations.
What D&O Insurance Actually Costs
The cost of D&O insurance varies dramatically based on your organization type and risk profile. Nonprofits enjoy the most affordable rates, typically paying between $600 and $1,700 annually for coverage. Private companies generally pay $5,000 to $10,000 per million dollars of coverage. Public companies face the highest premiums—ranging from 0.25% to 5% of coverage limits—because they're exposed to more securities litigation.
The good news is that the D&O insurance market has been buyer-friendly recently. Premiums dropped about 5.2% year-over-year in 2024, with nearly 70% of policies seeing rate reductions. After years of price increases driven by high-profile lawsuits, the market has stabilized. That said, if your company operates in emerging areas like AI, cryptocurrency, or has significant ESG exposure, you may face higher premiums as insurers try to assess these evolving risks.
Your premium also depends on your company's size, revenue, industry, claims history, and governance practices. Companies with strong internal controls, diverse boards, and clean compliance records typically get better rates. The amount of coverage you buy matters too—most private companies purchase between $1 million and $10 million in limits, while public companies often carry $25 million or more.
How to Get Started with D&O Coverage
Getting D&O insurance starts with understanding your risk exposure. If you're already serving as a director or officer, you need this coverage now—not later. Talk to an insurance broker who specializes in management liability. They'll help you assess how much coverage you need based on your company's size, industry, and specific risks.
Before you accept a board position or executive role, ask about the company's D&O policy. Find out what the coverage limits are, whether there's a retention or deductible you'd have to pay, and how the policy handles legal defense costs. If the company doesn't have D&O insurance, that's a major red flag. You're essentially agreeing to put your personal assets on the line with no protection.
Review your policy annually. The D&O landscape changes fast, with new types of claims emerging every year. What protected you adequately two years ago might leave gaps today, especially as your company grows or enters new markets. Your broker can help you adjust your coverage limits and endorsements to keep pace with your evolving risk profile.
The bottom line is this: serving as a company leader comes with significant personal liability exposure. D&O insurance is the one thing standing between a lawsuit and your family's financial security. It's not about expecting the worst—it's about being prepared so you can lead with confidence, knowing your personal assets are protected no matter what happens.
