Every director or senior officer makes decisions that affect the company, its shareholders, creditors, employees, and regulators. When those decisions lead to a claim against the individual personally alleging mismanagement, breach of fiduciary duty, or regulatory non-compliance — personal financial exposure can be significant. Directors and Officers insurance covers this personal liability. It is standard for listed companies and multinational boards. For Indian private companies, startups, and family businesses, it is increasingly necessary and often expected by investors.
The Three Coverage Sides
Side A — Individual Director Coverage
Protects directors’ personal assets when the company cannot or will not indemnify them typically in insolvency, or where indemnification is legally prohibited. This is the most critical cover because it directly protects personal finances.
Side B — Corporate Reimbursement
Reimburses the company when it has indemnified a director against a valid claim. The company pays the director’s defence costs first and then claims reimbursement from the insurer.
Side C — Entity Securities Cover (listed companies)
Covers the company itself against securities claims from shareholders alleging that management’s actions caused share price loss. Primarily relevant for listed companies.
Common D&O Claim Scenarios in India
- Minority shareholder alleging mismanagement of company funds by the board
- Creditors alleging wrongful trading or fraudulent preference in an insolvency proceeding under the IBC
- Regulatory investigation by SEBI, RBI, IRDAI, or MCA into alleged compliance failures
- Employees alleging wrongful termination or discriminatory management decisions
- Post-acquisition disputes where target company shareholders allege inadequate board process
Why Funded Startups Must Have D&O Insurance
When an investor joins a company’s board, they frequently require D&O insurance as a condition. This protects both the investor-director and the existing directors. Post-Series A, investor due diligence will typically ask about D&O cover. Absence of cover can slow funding rounds and signals governance gaps.
Draco Insurance places D&O insurance for private companies, startups, and family businesses across India. Visit dracoinsurance.in or call +91 7064106417.
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