D&O Insurance for Startups: When, What, and How Much
Written by Paul Jung, CFA
Curated by Rubric Financial
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What D&O Actually Covers
- D&O insurance pays for legal defense + settlement costs when board members, officers, or the company itself is sued for management decisions. Coverage typically extends to wrongful acts, breach of fiduciary duty, and securities violations.
- Three coverage layers: (A) Side A covers directors/officers personally when the company can't (e.g., bankruptcy). (B) Side B reimburses the company for indemnifying its directors. (C) Side C protects the company itself in securities lawsuits.
- NOT covered: criminal acts, intentional fraud, deliberate wrongdoing. The policy covers honest mistakes + business judgment, not bad-faith conduct.
- Why this matters: serving as a director or officer of a startup IS personally risky. Without D&O, a single shareholder lawsuit can wipe out a director's personal assets.
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