When does a startup need D&O insurance in place?
It depends on your financing documents. If investors have asked for D&O as part of a round, their deadline sets yours, and a new board member will want it in place before they join. Start a few weeks ahead so there’s time to compare options rather than take the first quote. If nobody has asked yet, it’s still worth a conversation once you have a board, because the policy protects the people running the company when they’re sued over decisions they made in that role.
Why investors ask for it
D&O insurance (directors and officers insurance) protects the founders, officers and board members of a company when they’re sued over how the company was run, for example by investors. Someone joining your board takes on that exposure personally, so investors and new directors want to know a policy is in place before they do.
The requirement is the investor’s minimum, not a verdict on the policy. A certificate that satisfies the round can still leave gaps in who is insured, how much is left after legal fees, or what is excluded. Those details decide whether the policy works when a claim arrives.
What a D&O policy actually does
A D&O policy pays for lawyers and for covered settlements or judgments, up to the policy limit. Without it, those costs can fall on the company or on the individuals themselves.
Most policies have up to three parts. One protects individuals directly when the company can’t or won’t cover them, and is the part meant to protect their personal assets. One repays the company when it does cover its people. One covers certain claims against the company itself.
D&O is about decisions, not the product. A claim that your product or service didn’t work as promised and cost a customer money is professional liability or technology E&O, which is a separate policy.
What to check before you send proof to the round
Investors usually ask for a certificate or a copy of the policy. Before you send it, check the things the requirement doesn’t spell out:
- Who counts as insured: the named company and usually its subsidiaries, but newly created or acquired entities may need to be added
- The total limit and which coverages share it, since legal fees usually come out of the same limit that pays settlements
- Whether D&O is bundled with E&O or other coverage, because three coverages on one policy can mean one pool of money, not three
- The retention, which is the amount you pay before the policy does, like a deductible
- How quickly a claim has to be reported
- What is excluded, especially earlier matters and misconduct
Matching the requirement, and what changes after the round
Send us the financing documents and your current policy, if you have one. We’ll tell you what you have, what’s missing, and what it would take to meet the requirement.
A policy is written for the company you described when you bought it. A later round, a new board member, an acquisition, or a change of ownership are all reasons to look at it again, and a sale usually ends the existing policy’s coverage for anything that happens afterward.