· I'mBoard Team · governance · 10 min read
The Private Company D&o Playbook Founders Swear By
A practical, operator-first dive into directors and officers liability for private startups, with concrete guardrails, real-world examples, and actionable steps to reduce risk without overpromising outcomes.
What is private company D&O insurance?
Directors and Officers (D&O) liability insurance for a private company is designed to protect the individuals who sit on the board and those in executive roles from personal financial risk arising from claims alleging mismanagement, breach of fiduciary duty, or other wrongful acts in the course of running the company. For startups, this coverage isn’t a luxury; it’s a governance necessity that helps attract and retain talent, secures investor confidence, and clarifies risk allocation between people and the entity.
In practical terms, a private company d&o policy typically covers defense costs, settlements, and judgments for claims made against covered individuals. It can also respond to regulatory inquiries, derivative actions, and employment-related claims if those fall within the policy’s scope. The policy sits on top of the corporate shield—protecting the people who are legally responsible for the company’s course—while the company itself maintains broader risk management and insurance programs.
Definitions and who is insured
Who’s protected under D&O varies by policy, but common patterns include:
- Current directors and officers acting in their official capacity
- Former directors and officers who were in office during a covered period
- Subsidiary or parent-board members, if named and funded by the private company
- Sometimes employees or volunteers named as “entity coverage riders” or “management liability” endorsements
Growth-stage companies often add or modify endorsements to capture key executives who may not sit on the board full-time but have decision-making authority. A well-structured policy aligns with your governance model, ensuring coverage follows who bears the fiduciary risk rather than who bears the payroll.
Why startups need D&O coverage early
The startup phase is defined by rapid growth, fundraising milestones, and evolving governance. That combination creates a higher exposure to lawsuits or regulatory inquiries even when no wrongdoing occurred. The costs of defending a claim—legal fees, expert witnesses, and potential settlements—can bankrupt a young company or derail a critical round of funding if left uninsured.
Early D&O coverage signals to investors that governance risk is being managed, not ignored. It also creates a framework for ongoing risk assessment, board training, and incident responses that scale with the company. The private company d&o policy evolves with you—from founder-led decision-making in a dorm room to a multiplatform, growth-stage board with complex reporting requirements.
Budgeting for D&O alongside E&O and cyber
While D&O is essential, it doesn’t stand alone. In a startup, you’re likely budgeting for several risk lines at once:
- D&O to protect leadership against governance and fiduciary claims
- Errors & Omissions (E&O) to cover professional services and product liability claims
- Cyber liability to address data breaches, privacy incidents, and third-party risk
Reserving for these lines requires a practical approach: assess historical incident patterns (even if anecdotal), evaluate the company’s risk profile, and forecast growth trajectory. The aim is not to paint a nightmare scenario but to ensure you can respond decisively without exhausting capital on defense costs.
What people ask about timing
What does D&O insurance cover for a startup? In short, it covers defense costs and settlements for claims alleging mismanagement, fiduciary duty breaches, or other covered wrongful acts by directors and officers. It can also respond to regulatory inquiries and certain employment-related claims depending on endorsements.
When should a private company buy D&O insurance? Ideally, before the first board meeting with outside investors or as soon as you have a formal board. If you’ve already started fundraising or have critical hires steeped in fiduciary duty, it’s prudent to obtain coverage promptly.
How to choose limits for D&O coverage? Start with a baseline aligned to the company’s risk exposure, investor expectations, and potential defense costs. Typical early-stage limits might range from $1–5 million per claim, with aggregate limits to cover multiple simultaneous claims, then scale as you raise capital and complexity grows. Always balance premium costs against the likelihood and impact of a claim.
Key coverage areas and exclusions
A robust private company D&O policy is built around coverage sections, endorsements, and exclusions. Understanding these elements helps you structure a policy that truly fits your risk profile.
Typical endorsements for growth-stage companies
Endorsements tailor coverage to startup realities. Common ones include:
- Side A directors and officers coverage (protects individuals when the company cannot indemnify them)
- Side B company reimbursement (the company indemnifies directors and officers and seeks recoupment from the entity)
- Side C entity coverage (protects the company itself in some policy formulations)
- Historical claims coverage for pre-IPO activity or prior leadership transitions
- Regulatory defense endorsements for inquiries from agencies such as the SEC or state regulators
- Derivative shareholder action coverage to address claims by investors who sue directors on behalf of the corporation
For growth-stage startups, a rider-focused approach often makes sense. You might pair a standard D&O policy with riders that address rapid hiring, M&A activity, or international expansion, each of which introduces new risk vectors.
Common exclusions and riders to consider
No policy is perfect out of the box. Common exclusions to watch for include:
- Fraud or intentional wrongdoing (often excluded, with exceptions for certain investigations)
- Non-indemnifiable costs (costs the company cannot reimburse the director for due to legal restrictions)
- Claims arising from certain types of penalties or fines (which may be excluded or capped)
- Prior acts not covered if the claim relates to events before the policy period
Riders to consider adding, depending on your risk profile, include:
- Regulatory defense riders for anticipated inquiries
- Event-driven riders tied to specific fundraising rounds, acquisitions, or leadership changes
- Broader employment-related coverage if you have a large workforce or high turnover at the executive level
When evaluating riders, price them against the incremental protection they provide and the likelihood of claims in those areas. It’s not simply “more coverage is better”—it’s about aligning protections with actual governance and operational realities.
Budgeting for D&O alongside E&O and cyber (in practice)
Think of your risk program as a portfolio. D&O is the governance backbone, E&O protects product, services, and professional activities, and cyber guards data and systems. A practical budgeting approach often looks like:
- Estimate annual D&O premiums based on company stage, revenue, and headcount growth. Lean startups may see lower bases, but as you approach Series A/B and board complexity increases, premium scales quickly.
- Coordinate with E&O and cyber to avoid overlapping coverage gaps. For example, ensure incident response costs aren’t counted twice or left uncovered due to misaligned policy language.
- Allocate a governance reserve: a small, predictable portion of budget each year dedicated to governance risk management, including D&O, policy reviews, and board education.
In practice, a well-managed governance budget keeps D&O premiums within a predictable range, while ensuring the organization can fund defense costs without compromising growth initiatives. This is not about creating rigid fear but about sustainable risk posture that doesn’t stunt strategic bets.
Implementation: policy adoption and governance best practices
Adopting D&O coverage is as much about policy mechanics as it is about governance culture. Here’s how to implement with discipline and clarity.
Checklist for board discussions and vendor selection
- Document risk drivers: funding rounds, M&A activity, international expansion, and regulatory inquiries expected in the near term
- Define insured individuals: confirm who sits on the board now and anticipated additions post-funding
- Set coverage goals: desired limits, Side A/B/C balance, and endorsements aligned with governance objectives
- Assess insurer capabilities: financial strength, claim handling reputation, and industry experience with startups
- Review exclusions and riders: ensure alignment with anticipated governance activities and risk tolerance
- Coordinate with other insurance programs: map D&O to E&O and cyber to avoid gaps or duplications
- Establish governance practices: routine board education on fiduciary duties, risk management, and incident response
- Plan for ongoing review: annual or semi-annual policy reviews to align with strategy, milestones, and regulatory developments
A practical approach is to have a breezy, 60-minute board workshop specifically focused on D&O: who is insured, what is covered, what is excluded, and how premiums are justified in relation to the company’s fundraising and growth trajectory. This isn’t a one-and-done exercise—it’s a living component of your governance program.
Practical governance guardrails to pair with D&O
- Documented fiduciary duties and decision rights for the board to reduce ambiguity in claims scenarios
- Clear escalation paths for potential governance concerns and whistleblower channels
- Regular boards and committee disclosures to ensure transparency, reducing the risk of surprise claims
- Board refresh planning to ensure the coverage keeps pace with leadership changes
These guardrails don’t replace D&O; they complement it. Together, they create a governance environment where risk is anticipated, decisions are documented, and claims are managed efficiently without derailing the company’s momentum.
Implementation: policy adoption and governance best practices (continued)
For a concrete, actionable path, follow these steps:
- Map your current governance structure: who are the directors, who are officers, and what are their roles in risk management
- Engage with a broker or insurer who has startup experience, and request a tailored proposal that includes Side A, B, and C coverage with growth-stage endorsements
- Solicit quotes and compare not just price but claim-handling quality, financial strength, and coverage gaps
- Institute a quarterly risk review: update on new hires, new fundraising rounds, and policy changes
- Document the decision: obtain board approval for the chosen policy, limits, and endorsements
- Implement governance improvements in parallel: board training, incident response simulations, and fiduciary duty refreshers
Internal links to relevant resources
To deepen your understanding and align with best practices, explore these internal resources:
- D&O coverage basics — foundational concepts and terms
- Engaging board governance practices — governance design and board effectiveness
- Rider options for growth-stage startups — practical endorsements and tailoring tips
People also ask (answered within the article)
What does D&O insurance cover for a startup? It covers defense costs and settlements for claims alleging mismanagement or fiduciary duty breaches by directors and officers, and it can respond to regulatory inquiries and certain employment-related claims depending on endorsements.
When should a private company buy D&O insurance? Ideally before or right after forming a formal board. If you’re raising capital or adding key executives with fiduciary duties, securing coverage early helps mitigate risk and signals governance readiness to investors.
How to choose limits for D&O coverage? Start with a baseline aligned to exposure, fundraising stage, and potential defense costs. Early-stage startups often target modest per-claim limits with adequate aggregate protection, scaling as the company grows and the board becomes more complex. Balance premium cost with the risk of a claim hitting your budget.
Conclusion: practical, operator-first protection you can actually rely on
Private company D&O isn’t a vague promise of safety; it’s a concrete, governance-centric tool that safeguards the people steering the company. By choosing appropriate endorsements, understanding exclusions, and embedding risk management into board routines, you create a risk-aware culture without choking growth. The right policy, paired with disciplined governance practices, helps you weather claims and regulatory inquiries without losing momentum on your critical strategy milestones.
For further context on governance and risk, you can explore regulatory perspectives and governance requirements from trusted industry sources, such as the National Association of Insurance Commissioners (NAIC): NAIC — regulatory context on D&O and governance requirements for private companies.
Remember: the goal isn’t to promise perfect outcomes, but to reduce avoidable risk with concrete actions. In startups, measured risk management is a competitive advantage. Start with a clear D&O plan, align it with your growth strategy, and treat governance as a mission-critical capability—not an afterthought.
