Director's And Officers Insurance: The Missing Piece

Introduction

Director’s and officers insurance (D&O) for startups protects the people steering the ship from claims related to management decisions. This guide explains stage‑driven limits, essential endorsements, and governance practices to buy D&O without burning runway. It also shows how to prepare governance materials and board processes that underwriters actually reward.

Understanding director’s and officers insurance

Director’s and officers insurance (D&O) is a claims‑made policy that defends directors and officers against governance‑related lawsuits and regulatory actions. It funds defense costs, settlements, and indemnification where the company cannot provide full protection. For startups, good D&O structure aligns with governance maturity and investor expectations.

How to choose limits by startup stage

Think of limits as a 2x2: board exposure (low vs high) on one axis and external commitments (low vs high) on the other.

• Both low: consider starting with small limits (around $1M).
• One axis high: target $2M–$5M.
• Both high: plan $5M–$10M plus Side A enhancements.

Underwriters evaluate governance quality and risk posture more than “headline” coverage. Be deliberate.

Stage-based: the D&O decisions from Pre-Seed to Series B

Calibrate limits, retentions, and Side A protection to milestone triggers. Reassess at each financing round and put limit‑increase triggers on the board calendar so increases occur at financing close or when a director joins.

Pre-Seed: when you can delay — and the guardrails

No outside directors, no closed financing, and minimal external promises? You can delay a few months. If you delay, codify indemnification in bylaws, approve defense‑cost advancement, and have directors sign indemnification agreements before you wait. Bind within seven days if risk rises — for example, the first outside director or a bridge that adds seats. A pre‑approved indemnification template and a board‑level limit/retention range speed a fast move.

Tip: active external advisors who vote or shape formal decisions can carry governance risk similar to directors for insurance purposes.

board meeting templates and the related governance processes matter here, and you can use the startup governance guide as a compass.

Seed: minimum viable coverage to satisfy advisors

Aim for $1M–$2M total limits with a reasonable retention to satisfy investor counsel and help recruit advisors. Many Seed term sheets require D&O proof at close or within 30 days. Time procurement to align with financing timelines. Heuristics: retention around 0.5%–1.0% of cash on hand, capped near one month’s burn.

Series A: outside directors and term sheets change the math

With independent directors and institutional investors, move to $2M–$5M depending on board mix, customer base, and revenue. Outside directors typically request explicit Side A protection and clear retentions. Create a concise one‑page D&O term‑sheet addendum showing limit, carrier, Side A status, and diligence timeline. After close, host a short board session to walk through Side A/B/C, retentions, and notice obligations so everyone is aligned.

Series B: higher stakes — consider Side A DIC and higher retentions

At Series B, bankruptcy risk increases and protection against derivative suits becomes more critical. Consider a Side A DIC layer and higher retentions to balance premium with meaningful protection. Expect total limits to rise to the $5M–$10M range when customer concentration, revenue, or headcount justifies it. Have an incident‑response flow so carriers are notified early and defense costs are controlled. For example, a Series B fintech used Side A DIC to fund defense when indemnification was constrained, keeping directors focused on growth.

When can you delay director’s and officers insurance?

Delay is reasonable if there are no independent directors, no financing term‑sheet condition requiring D&O, and no enterprise contracts with personal attestations. If these conditions change — for example, an LOI, outside director, or contractual attestations — bind within seven days. Ensure bylaws include advancement and indemnification provisions to stay protected during the interim.

What your policy pays (and what it won’t): Side A/B/C plus the exclusions

For more insights on this topic, see our guide on The D&o Insurance For Startups Myth Thats Costing You.

D&O policies are claims‑made and respond to alleged wrongful acts by directors and officers.

• Side A protects individuals when the company cannot indemnify them.
• Side B reimburses the company for defense costs and indemnification amounts.
• Side C covers the corporate entity for securities claims tied to private placements or secondaries.

Exclusions and retentions drive cost and coverage. Negotiate carve‑outs and robust Side A protections to reduce post‑claim disputes.

Side A, B, C for startups: who’s protected and when it responds

Side A pays individuals directly when the company cannot indemnify due to insolvency or legal limits. Side B reimburses the company after it advances defense costs. Side C covers the company for securities claims. Make sure there is an order‑of‑payments clause that prioritizes Side A when limits get tight.

Endorsements to prioritize

Must‑have endorsements for startups:

• Insured‑vs‑insured carve‑outs that include derivative, whistleblower, and bankruptcy trustee claims.
• Prior‑acts coverage back to incorporation or the last financing.
• Final‑adjudication wording for fraud where available.
• Outside directorship liability (ODL) and non‑rescindable Side A with Side A drop‑down.
• An order‑of‑payments clause favoring Side A.

If you can’t get everything, focus on carve‑outs, final‑adjudication language (if accepted by the carrier), and ODL to avoid common traps.

Cost reality: premiums and retentions by stage

Premiums scale with headcount, revenue, and investor mix. Treat numbers as directional and verify with your broker. Benchmarks (directional, per $1M):

• Small teams (≤25 FTE): roughly $3.5k per $1M
• Medium teams (26–100 FTE): roughly $5.5k per $1M
• Large teams (>100 FTE): roughly $7.5k per $1M

Seed: retention in the low five figures; Series A: mid five figures; Series B: upper five to low six figures. When renewing, present two options—higher retention with lower premium vs lower retention with higher premium—and include a simple payback calculation for the board.

Pitfall: cutting limits now to save a few thousand and adding a new outside director two months later. Plan next stage carefully with effective dates.

Coverage craftsmanship: spotting red flags

Two quotes with the same limit are rarely equal. Inspect carve‑outs and severability.

Red flags: narrow insured‑vs‑insured carve‑outs, no severability, Side C limited to public companies in the wording, and tiny investigation sublimits.

Checklist: confirm fraud exclusions require final adjudication where feasible, ensure carve‑outs cover derivative and whistleblower claims, verify Side A is non‑rescindable, and test investigation sublimits.

Example: a cheap quote excluded pre‑incorporation acts; a pricier quote with ODL and non‑rescindable Side A was the right choice.

Board-ready in 7 days: the D&O procurement sprint

Treat underwriting like a one‑time data room build — package documents once and reuse them. Assign owners, coordinate early around director deadlines, and follow a strict 7‑day plan to bind before close.

Timeline and owners: Day 1–7 to bind

• Day 1: kickoff with the broker; confirm limits, retentions, board roster, and financing timeline; assign owners.
• Day 2: upload bylaws, charter, indemnification agreements, cap table, and the last two board minutes.
• Day 3: provide financials — trailing 12‑month P&L, balance sheet, cash runway, and ARR/MRR.
• Day 4: market the terms with the broker and answer follow‑ups within 24 hours to avoid stalls.
• Day 5: receive indications and compare endorsements first, price second.
• Day 6: negotiate critical endorsements — insured‑vs‑insured carve‑outs, prior acts, and severability.
• Day 7: bind and circulate a policy binder and specimen to counsel and directors.

Use RAPID roles — Recommend (broker), Agree (GC), Perform (ops/finance), Input (board chair), Decide (CEO) — and assign people on Day 1. This avoids last‑minute chaos. ImBoard.ai can help surface missing documents and deadlines.

Underwriting package: documents you’ll need

Underwriters expect predictable governance and financials: bylaws/charter, board minutes, indemnification agreements, cap table, latest financials, investor deck, and any open disputes. Include a governance memo outlining conflicts policy, minutes process, and defense‑advancement practices to help underwriters.

Speed levers: governance artifacts and escalation

Executed indemnification agreements, recent approved minutes, and a reconciled cap table speed things up. If redlines stall for 48+ hours, request a 15‑minute counsel‑to‑counsel call with the broker to unblock negotiations. Underwriters price governance quality—well‑run governance yields better terms.

ImBoard.ai can automate one‑page onboarding checklists, collect executed indemnifications, and store proof of D&O so renewals and new director additions don’t derail coverage. This is the second explicit mention.

Use board hygiene to lower premium and reassure directors

Underwriters favor predictability. Documented decision processes, clean minutes, and an accurate cap table improve pricing. Reassure independent directors that coverage and governance will hold up under pressure with solid documentation.

Controls that move pricing

Timely board minutes, a conflicts policy with annual attestations, and a versioned cap table with option administration controls help. Maintain an incident response and litigation‑hold playbook and an annual financial review. Direct underwriters to your documented workflows and template binders to help renewal.

Add a standing quarterly agenda item to flag claims, incidents, or contract changes that may require carrier notice. If directors live abroad or you open subsidiaries, check local requirements and reflect them at renewal. Longer tail options (ERP) may be available in some markets.

Frequently Asked Questions

For more insights on this topic, see our guide on Board Of Directors Meetings Guidelines: The Missing Piece.

Q: When can a startup reasonably delay buying D&O insurance?

A: Delay is reasonable if there are no independent directors, no financing term‑sheet condition requiring D&O, and no enterprise contracts with personal attestations. If those change, bind within seven days.

Q: How much D&O coverage should a Seed‑stage startup buy?

A: Seed‑stage startups typically target $1M–$2M total limits with a pragmatic retention. Retention guidance (0.5%–1.0% of cash on hand) is a heuristic; validate with your broker.

Q: What is Side A DIC and when does a startup need it?

A: Side A DIC pays individuals directly when the company cannot indemnify them. Consider it at Series B+ or when corporate indemnification could be limited by insolvency risk or substantial exposure.

Q: What endorsement priorities should startup CEOs negotiate first?

A: Priorities include insured‑vs‑insured carve‑outs (derivative/whistleblower), prior‑acts coverage back to incorporation, and final‑adjudication language for fraud where available.

Q: How do retentions typically scale across stages?

A: Retentions scale with stage: Seed — low five figures; Series A — mid five figures; Series B — upper five to low six figures. These are broad ranges; confirm with your broker.

Q: What documents accelerate binding D&O in a 7‑day sprint?

A: A complete underwriting package includes bylaws/charter, indemnification agreements, reconciled cap table, recent board minutes, trailing 12‑month financials, and investor materials. Assign document owners on Day 1 and respond to follow‑ups within 24 hours.

Q: Does D&O cover company errors like cap‑table mistakes?

A: D&O can respond to claims arising from cap‑table errors when they involve directors’ or officers’ wrongful acts, but coverage depends on exclusions and carve‑outs. Confirm prior‑acts coverage and carve‑outs.

Glossary

For more insights on this topic, see our guide on Why D&o Directors Insurance Isnt What You Think.

Fiduciary Duty: The legal obligation of board members to act in the company’s and shareholders’ best interests.
Side A Coverage: Pays individuals when the company cannot indemnify them.
Side B Coverage: Reimburses the company for defense costs and indemnification payments.
Side C Coverage: Protects the corporate entity for securities‑related claims.
Insured‑vs‑Insured Exclusion: A clause that can bar claims between insured parties; negotiate carve‑outs for derivative claims, whistleblowers, and trustees.
Prior‑Acts Date: The policy date to which coverage applies for past acts; push this back to incorporation or the last financing.
Final‑Adjudication Wording: Language that requires a final court finding of fraud for fraud exclusions to apply, where carriers allow.
Side A DIC (Difference in Conditions): An excess layer paying Side A claims when primary coverage is exhausted.
Order‑of‑Payments Clause: Determines the priority of payment among Side A, B, and C claims; prioritize Side A for individuals’ protection.
Extended Reporting Period (ERP): Tail coverage allowing claims to be reported after policy termination.