“Mind the Gap”: The D&O Coverage Pitfalls That Could Swallow Your Business Whole

You’ve got Directors & Officers (D&O) insurance. Great. That means your executive team can boldly lead without worrying about personal lawsuits, right?

Not so fast.

D&O policies are notorious for having more holes than a conspiracy theory Reddit thread. And when the subpoenas start flying, those gaps can turn into gaping financial wounds. Let’s walk through the most common ones, so you don’t find out the hard way that your “protection” has a few escape hatches.

The "Insured vs. Insured" Oopsie

What it is: Most D&O policies exclude lawsuits between insured parties—think one executive suing another.

Why it matters: In real life, a lot of claims come from within. Fired execs, whistleblowers, even co-founders falling out.

How to plug it: Look for carve-backs for whistleblower claims, derivative suits, and employment-related disputes. Or better yet, have a broker who reads the fine print (that's where we come in).

Severability: It's Not Just a Legal Buzzword

What it is: If one person fibs on the application, the whole policy can be voided, unless your policy includes severability.

Why it matters: Your CFO's “creative storytelling” shouldn’t wipe out protection for the rest of your board.

How to plug it: Make sure your policy includes full severability of both the application and exclusions.

The Shrinking Policy Limit Dilemma

What it is: Legal defense costs erode the limit of liability—fast.

Why it matters: You might burn through your $1M limit on legal fees before the court even considers damages.

How to plug it: Consider policies with separate Side A limits or excess Side A Difference-in-Conditions (DIC) coverage for extra protection when the company can’t indemnify.

The Employment Practices Ambush

What it is: Many D&O policies exclude employment-related claims—or provide only minimal coverage.

Why it matters: The most common D&O claims? Wrongful termination, harassment, and discrimination. Yes, those count as employment issues.

How to plug it: Pair your D&O with robust EPLI (Employment Practices Liability Insurance) or ensure your D&O includes broader employment-related coverage.

The Fine Print Around Private Equity and M&A

What it is: Acquisitions, capital raises, or even restructuring can void your coverage—or make it inapplicable post-transaction.

Why it matters: Nothing kills a deal faster than a “D&O coverage no longer applies” clause.

How to plug it: Check your change-in-control provisions and be sure your tail coverage (or runoff coverage) is locked in.

The Cyber Grenade

What it is: A data breach can lead to shareholder suits against directors—but many D&O policies subtly exclude tech and privacy-related claims.

Why it matters: If your CISO gets grilled and the board is dragged in, you’ll want more than a shrug from your insurer.

How to plug it: Ask whether your D&O covers cyber-triggered fiduciary suits—and if not, shore it up with complementary cyber insurance.

Final Word: D&O Coverage Shouldn’t Be a DIY Project

Reading a D&O policy is like trying to decode Shakespeare if he’d gone to law school and had a caffeine problem. That's why partnering with a specialist broker (👋 hi, we’re Execurisk) can mean the difference between airtight protection and a courtroom panic attack.

We dig into the policy details so you don’t have to—because real protection is in the fine print, not just the headline.

Ready for a D&O policy that doesn’t leave you guessing? Let’s talk: info@execurisk.com