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D&O Insurance Coverage, Exclusions, & Carve-Backs: 2026 UK Policy and Market Guidance
- Designed to fund the legal defense and compensation costs resulting from 'wrongful acts' committed by board members
- A D&O policy's true strength lies within its ‘exclusions’ and its 'carve-backs’
What Is Covered?
Directors and Officers (D&O) Insurance responds to claims made against directors and officers for alleged wrongful acts committed in their capacity as decision-makers. These may include breaches of duty, mismanagement allegations, regulatory investigations, shareholder actions, employment-related claims, insolvency-related disputes, or governance failures.
A well-structured D&O policy should provide broad protection for directors and officers while clearly distinguishing between insurable management liability and conduct that insurers cannot legally or commercially support.
Legal Defence Costs
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One of the most important features of D&O insurance is funding legal defence from the moment a claim, investigation, or formal allegation arises. Directors can be forced to engage specialist defence lawyers, barristers, forensic accountants, crisis advisers, or expert witnesses before liability has been established. These costs can be substantial, even where the director is ultimately cleared of wrongdoing.
Damages and Settlements
Where directors or officers are legally liable for a covered wrongful act, D&O insurance may respond to civil damages, compensation awards, and negotiated settlements.
In many cases, disputes are resolved through negotiated settlements rather than final court judgments. D&O insurance can provide the financial backing to settle covered claims commercially, protecting both the individual director and the business from prolonged litigation.
Regulatory Investigation Costs
A D&O policy can help fund costs associated with official investigations where an insured person is required to attend interviews, produce documents, or respond to formal enquiries. Depending on the wording, this may include investigations involving:
- HMRC
- Health and Safety Executive (HSE)
- Financial Conduct Authority (FCA)
- Information Commissioner’s Office (ICO)
- The Insolvency Service
- Companies House
- Competition and Markets Authority (CMA)
Regulatory investigations can be highly technical and reputationally sensitive. Even where no wrongdoing is ultimately found, directors often need specialist legal representation.
What Is Absolutely Excluded?
D&O insurance protects against wrongful acts. It is not designed to insure deliberate wrongdoing, dishonesty, or liabilities known before the policy was purchased.
Deliberate Fraud and Personal Gain
D&O insurers will not indemnify directors for proven fraud, dishonesty, or illegal personal profit. This exclusion typically applies where a director has deliberately acted dishonestly or gained a personal benefit to which they were not legally entitled.
However, most well-drafted policies distinguish between allegations and final adjudication. This means defence costs may be advanced while allegations are being investigated, but the insurer may have the right to stop payment or recover costs if fraud, dishonesty, or illegal profit is established by a final judgment, admission, or other defined trigger.
Directors are often accused of misconduct before facts are proven, and the policy should still provide defence protection while the matter remains contested.
Prior Knowledge and Known Litigation
Claims or circumstances known to the board before policy inception are typically excluded. Insurers expect full disclosure of existing disputes, threatened claims, regulatory investigations, insolvency concerns, shareholder conflicts, or matters that could reasonably give rise to a claim.
Failure to disclose known circumstances can lead to declined claims or policy disputes. For this reason, accurate disclosure at proposal and renewal is essential.
Uninsurable Fines and Penalties
Fines or penalties made by a regulatory body may be uninsurable. If the intent of the regulator is to penalise the company or directors and if they could be insured against, they don’t have the intended impact.
No insurer will be able to break the law to indemnify under the policy if the fine or penalty is deemed uninsurable by law.
Insured vs. Insured in US Jurisdictions
Many D&O policies contain an Insured vs. Insured exclusion, particularly where US or Canadian exposure exists. This exclusion is designed to prevent collusive or internal legal disputes, such as a company suing its own directors purely to access insurance proceeds.
The concern is especially significant in North America, where litigation frequency, discovery costs, and settlement values can be far higher than in the UK.
Exclusions with Potential Carve-Backs
Some D&O exclusions are necessary, but they should not be absolute. The best policies contain carefully negotiated carve-backs that preserve protection for directors where the underlying event is excluded elsewhere but the management liability exposure remains insurable.
Bodily Injury Exclusion
D&O policies generally exclude claims for bodily injury, sickness, disease, or death. Those risks are normally addressed by Employers’ Liability, Public Liability, Product Liability, or other casualty policies.
However, directors can still face personal prosecution or investigation following a serious injury, fatal accident, or corporate manslaughter allegation. A well drafted D&O policy should therefore include a carve-back for defence costs relating to health and safety, corporate manslaughter, and regulatory investigations.
Where a fatal accident occurs, directors may be called for an interview, named in investigations, or prosecuted personally. The right carve-out can be the difference between funded legal representation and personal financial exposure.
Cyber Exclusion
Many D&O policies contain cyber exclusions to prevent overlap with dedicated Cyber Insurance. This makes sense where the claim relates directly to data restoration, breach response, forensic costs, ransomware recovery, or privacy liability.
However, a cyber incident can also trigger a separate D&O claim. For example, shareholders, regulators, or creditors may allege that the board failed to implement adequate cyber governance.
This distinction is increasingly important as cyber risk becomes a board level responsibility. In this scenario, the cyber event may be the factual background, but the claim against directors is one of governance failure.
A well drafted D&O policy should preserve cover for cyber governance claims, even where first-party cyber losses and privacy liabilities are directed to a Cyber Insurance policy.
Professional Services Exclusion
Many D&O policies include a Professional Services Exclusion to prevent the policy from responding to claims that properly belong under a Professional Indemnity, Errors & Omissions, or Technology E&O policy.
However, if the wording excludes any claim “arising out of or in connection with” professional services, insurers may attempt to apply it not only to client negligence claims, but also to other allegations. For example, a PI policy may deal with a client’s allegation of negligent advice, but a D&O policy may still be needed if shareholders allege the board failed to supervise the professional service.
A strong D&O policy should therefore include a carve-back preserving cover for genuine claims, even where the factual background involves professional services. The carve-back should protect directors and officers against allegations such as failure to supervise, breach of fiduciary duty, misstatements, and governance failures.
Tailored Coverage
There may be alternative insurance underwriters that may provide less restrictive D&O exclusions, or we may be able to specifically negotiate a clause by narrowing the language of the exclusion. Alternatively, there may be scope to carve-back defence costs under the specific exclusion.
Tailored D&O exclusions can provide the board of directors’ greater comfort that in the event of a claim, the insurer will not deny a claim. D&O insurance is a complex product, and the exclusions can significantly affect the coverage. It's recommend you engage with a specialist D&O brokerage to negoiate terms on your behalf.
D&O Guides
Why Policy Wordings Matters
D&O Insurance is often purchased to protect individuals, but many policies differ significantly in how they handle defence costs, exclusions, carve-backs, investigation triggers, and Side A protection. The strongest policies are usually not the cheapest. They provide clear protection for directors when claims are uncertain, allegations are unproven, and company support may not be available.
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