Last verified: 2026-06-03
Directors and officers (D&O) liability insurance in India: law, cost and cover
When the collapsed infrastructure conglomerate imploded under roughly Rs 90,000 crore of debt in October 2018, the people who lost the most sleep were not the executives who ran it day to day. They were the independent directors. The Serious Fraud Investigation Office (SFIO) publicly signalled it would question former independent directors, branding several of them “mute spectators” for failing to flag warnings buried in board papers, audit reports and RBI inspection notes. And that single word, “independent”, which everyone had treated as a shield, turned out to protect almost nothing. This is precisely the moment directors and officers (D&O) liability insurance in India stopped being a multinational nicety and became a board-table conversation.
It was not the first warning. Back in 2009, when the founder of a Hyderabad-based IT services giant confessed to inflating the company’s accounts by more than a billion dollars, several independent directors, including members of the audit committee, were dragged into years of litigation and regulatory proceedings. The company did carry D&O cover. But the limit proved badly short of the exposure, and the matter eventually spilled into a dispute with the insurer itself. Cover existed, yet it did not stretch far enough. That gap, between having a policy and having the right policy, is the whole subject of this guide.
A more recent jolt came from the securities regulator’s scrutiny of a beverages company’s board, where the independent directors were held to the diligence standard for failing to act on warning signs. Their defence (that they could not access the relevant documents) was rejected, because they produced no proof of ever having tried to get them. Here’s the uncomfortable lesson for anyone weighing a board seat: the diligence test under Indian company law is not satisfied by good intentions. It is satisfied by evidence of effort.
Now picture two directors who sat on similar boards through the same storm. One had taken a non-executive seat only after confirming the company carried a properly structured D&O policy with a dedicated limit for independent directors and run-off cover that survived her resignation. When a shareholder claim landed two years after she stepped down, her defence costs were funded from day one, before any finding of liability. The other accepted his seat on trust, assumed the company’s indemnity would catch him, and discovered too late that the company had gone insolvent and could indemnify nobody. Same risk. Same statute. Wildly different outcomes. The difference was not luck. It was whether the cover was read, sized and negotiated before the seat was accepted.
These three episodes, taken together, rewired how Indian boards think about personal liability. They also exposed exactly where the insurance stops.
Directors and officers (D&O) liability insurance in India protects directors, officers and the company against legal costs and damages arising from claims that allege wrongful acts in managing the company. It is not generally mandatory, but SEBI’s LODR Regulation 25(10) has required it for independent directors of the top 1,000 listed companies since 1 January 2022.
So the practical questions are no longer abstract. What does this cover actually pay for, who must carry it, what does it quietly refuse to touch, and how much should a company spend? The sections below answer each of those, starting with the basics and building toward the buying decision.
What is directors and officers (D&O) liability insurance in India?
Every time a director signs off on a board resolution, approves accounts or stays silent during a strategy debate, they create a record that a regulator, shareholder or creditor can later scrutinise. That exposure is personal. It does not vanish when you leave the room, and it does not always sit with the company. Directors and officers (D&O) liability insurance in India is the financial buffer between that personal exposure and a director’s own assets.
So what is it, in one clean line? D&O insurance is a liability policy that pays the legal defence costs, settlements and damages a director or officer incurs when they are accused of a “wrongful act” in their management of the company. A wrongful act, in policy language, is broadly defined: any actual or alleged breach of duty, neglect, error, misstatement, misleading statement or omission committed in a managerial capacity. The trigger is the allegation, not proven guilt, which is exactly why the cover matters before any court has decided anything.
How a D&O policy actually works
Here’s the thing most first-time buyers miss. A D&O policy does not insure the company’s commercial losses or the director’s bad business judgment. It insures the cost of being accused. The insured persons are the company’s past, present and future directors and officers, and the policy responds when a claim is made against them personally during the policy period. The company itself is also an insured for certain heads of cover (more on the three “sides” below).
Think of it this way. If a shareholder alleges that the board approved a related-party transaction in breach of Section 166 of the Companies Act, 2013 (which codifies a director’s duties, including the duty to act in good faith and avoid conflicts of interest), the policy steps in to fund the defence, appoint counsel and, if a court or regulator finds liability for a covered matter, pay the resulting damages up to the policy limit. The director does not write a personal cheque to the lawyers. The insurer does.
And that’s the real value proposition. Directors are not insured against being good or bad at their jobs. They’re insured against the ruinous cost of defending the decisions they made in good faith when someone later disagrees.
Why D&O became relevant in India
For decades, D&O cover in India was something only the Indian arms of multinationals bought, mostly because their overseas parents insisted on it. Indian promoters saw little need. That changed when Section 166 of the Companies Act, 2013 codified director duties into hard statutory language and a parallel provision calibrated the liability of independent and non-executive directors. Suddenly, exposure was written into the statute, not left to common-law guesswork.
Two governance shocks did the rest. The 2009 accounting fraud at a major IT services company put independent directors in the regulatory crosshairs for the first time at scale. Then the 2018 collapse of the infrastructure conglomerate converted “directors and officers (D&O) liability insurance in India” from a procurement footnote into a board-level agenda item. Demand inflected sharply after each event. Was that an overreaction? Hardly. The litigation that followed both episodes ran for years.
Is D&O insurance mandatory in India? SEBI LODR and the legal triggers
The short answer? D&O insurance is not generally mandatory in India, but for one large category of companies it absolutely is. SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations require the top 1,000 listed entities by market capitalisation to maintain D&O cover for their independent directors. So whether you “must” carry it depends entirely on which box your company sits in.
That distinction matters because most boards assume the rule is binary: either everyone must have it or nobody does. The reality is layered. There’s a hard legal mandate for one group, a contractual mandate that increasingly behaves like a legal one for another, and a pure risk-based choice for everyone else.
What Regulation 25(10) of SEBI LODR requires
Regulation 25(10) of the SEBI LODR Regulations is the single most important provision in this entire topic. Since 1 January 2022, every entity in the top 1,000 listed companies (ranked by market capitalisation as on 31 March of the preceding financial year) must undertake D&O insurance for all its independent directors, of a quantum and for risks as the board may determine. The board sets the limit, but the obligation to carry cover is not optional.
Worth flagging: the regulation mandates cover for independent directors specifically, not for the whole board. Companies that read the rule narrowly sometimes buy a thin independent-director-only policy and leave executive directors exposed, which is a false economy given that a single policy covering the full board usually costs only marginally more. If your company is climbing toward the top 1,000 threshold, treat this as a compliance deadline, not a nice-to-have. (For the broader listed-company obligations that sit alongside this one, see our guide to the role of independent directors under the SEBI LODR framework.)
When private, unlisted, NGO and startup boards still need it
Here’s where “not legally mandatory” stops being reassuring. A private company, an unlisted public company, a Section 8 (not-for-profit) company or an early-stage startup faces no SEBI mandate. But the directors of all of them carry the same statutory exposure under the Companies Act, 2013, and the company indemnity they’re relying on is worthless if the company becomes insolvent.
For startups, the practical mandate now comes from investors. Venture capital and private equity term sheets increasingly require the company to put D&O cover in place as a condition of investment, often from Series A onward. Does a startup “need” it if no investor asks? Frankly, this gets overlooked: founders and early independent directors are personally exposed from day one, and a single employment-practices or investor-dispute claim can wipe out a young company’s cash. NGOs and Section 8 companies sit in a similar bind, since their boards often include unpaid professionals who would never accept the risk if they understood it.
The likely direction of travel (and we’d flag this cautiously, since regulatory timelines are unpredictable) is mandate creep. Pressure to extend the D&O requirement beyond the top 1,000, to all listed entities and eventually to large regulated unlisted companies, has been building since the IL&FS episode. We would not be surprised to see the threshold widened within the next few years, though no firm proposal has been notified as of mid-2026.
Is your company required to carry D&O insurance?
Work down the branches that describe your company
What does D&O insurance cover? Side A, Side B and Side C explained
Ask three directors what their D&O policy covers and you’ll often get three different answers, none of them complete. The confusion almost always comes down to one thing: nobody explained the three “sides” of cover. Once you understand Side A, Side B and Side C, the entire policy structure clicks into place.
So what’s actually being protected, and who’s it for? Side A protects individuals directly. Side B reimburses the company. Side C covers the company entity itself. Each side answers a different “who pays whom” question, and the gaps between them are where directors get hurt.
Side A, Side B and Side C: what each covers
| Side | What it covers | Who it protects | When it pays |
|---|---|---|---|
| Side A | Defence costs and losses of directors and officers personally | Individual directors and officers | When the company cannot or will not indemnify them (e.g. insolvency, or where indemnity is legally barred) |
| Side B | Reimbursement to the company for amounts it has paid to indemnify its directors and officers | The company’s balance sheet | When the company has lawfully indemnified its directors and seeks reimbursement |
| Side C | The company entity’s own liability, typically for securities claims | The listed company itself | When the company is named as a co-defendant in a securities or shareholder claim |
The single most important side for an independent director is Side A. Why? Because it’s the only one that responds when the company is insolvent or legally unable to indemnify, which is exactly the scenario the IL&FS-style collapse produces. If your company fails and your indemnity is worthless, Side A is the difference between a funded defence and a personal bankruptcy.
Defence costs, investigation costs and who can sue a director
A D&O policy pays defence costs as they’re incurred, not after the case ends. This “duty to advance defence costs” is the practical heart of the cover, because most directors never lose a final judgment. They lose money on lawyers, forensic accountants and years of proceedings. The policy funds that fight from the start.
Who actually brings these claims? Far more parties than most directors expect. Shareholders and investors allege misstatements in disclosures. Regulators such as SEBI, the Registrar of Companies, the SFIO, the Enforcement Directorate and the National Company Law Tribunal (NCLT) initiate proceedings and investigations. Employees bring employment-practices claims (wrongful dismissal, discrimination, harassment). Creditors and resolution professionals pursue directors in insolvency. A well-structured policy covers investigation costs for many of these regulatory processes, though the precise scope (and any sub-limit) is exactly what you must check on the schedule. Does it cover an SFIO or ED investigation cost? Often yes, but read the definition of “investigation” carefully, because some policies trigger only once a formal notice or summons is issued.
Side A DIC (Difference-in-Conditions) top-up cover
There’s a fourth layer worth knowing about. A Side A DIC (Difference-in-Conditions) policy is a dedicated, ring-fenced top-up that sits above the main D&O programme and responds only for the benefit of individual directors and officers. It “drops down” to pay where the underlying policy fails (for example, if the primary insurer becomes insolvent, wrongfully refuses to pay, or the limit is exhausted by company claims under Side C).
For independent directors of large or high-risk companies, a Side A DIC is the gold standard, because it cannot be eroded by the company’s own claims and offers broader terms with fewer exclusions. Most growth-stage companies don’t need it. But if you sit on the board of a listed entity with real securities-litigation exposure, it’s worth asking whether one exists.
Side A, Side B and Side C D&O cover
Who each side of a directors and officers policy protects
Protects directors and officers directly
Pays the individual director or officer when the company cannot or does not indemnify them, for example where the company is insolvent or indemnification is legally barred.
Insurer → pays the individual director / officer
Reimburses the company
Repays the company for amounts it has lawfully paid to indemnify its directors and officers: the company’s balance sheet is made whole.
Company indemnifies director → insurer reimburses the company
Covers the company entity itself
Responds to securities claims brought against the company as an entity. Most relevant to listed companies facing shareholder or securities-related actions.
Insurer → pays the company (entity securities claims)
Callout: Side A DIC top-up
A standalone Side A “difference-in-conditions” (DIC) layer sits on top of the main policy. It pays individual directors directly when the primary policy is exhausted, rescinded, or refuses to pay. A dedicated safety net for personal assets.
Independent director liability and D&O: the Section 149(12) bridge
If you take one section away from this entire guide, make it this one. The whole reason independent directors lie awake worrying about board seats is a gap between two ideas: the law says they’re liable only in narrow circumstances, but regulators and complainants name them anyway, forcing them to prove they fall inside the protected zone. D&O insurance is the bridge across that gap. It funds the fight to establish that you were never liable in the first place.
Is “independent” a shield? Legally, partly. Practically, only if you can prove diligence and only if your defence is funded. The statute gives you the defence. The insurance pays for it.
How Section 149(12) limits independent and non-executive director liability
Section 149 of the Companies Act, 2013, specifically sub-section (12), is the calibrated liability standard for independent and non-executive directors. It provides that such a director shall be held liable only for acts of omission or commission by the company that occurred with their knowledge (attributable through board processes), with their consent or connivance, or where they had not acted diligently. In plain terms: you’re not automatically liable just because you sat on the board. You’re liable if you knew, agreed, colluded, or were asleep at the wheel.
The diligence limb is the one that bites. It’s a positive duty: the director must show they actually applied their mind, raised questions, sought information and recorded dissent where warranted. Silence is not safety. This is also why understanding the personal liability of independent directors under Section 149(12) (and exactly how Section 149(12) shapes a director’s exposure) is the starting point for anyone evaluating whether their D&O cover is fit for purpose.
The criminal-law angle reinforces the same principle. Under Section 141 of the Negotiable Instruments Act, 1881, a director can be prosecuted for a company’s bounced cheque only if they were “in charge of and responsible for” the conduct of the business. The Supreme Court drew that line clearly in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89, holding that a bare averment is not enough: the complaint must show the director’s specific role. It refined the protection for non-executive directors in Pooja Ravinder Devidasani v. State of Maharashtra, (2014) 16 SCC 1, ruling that a non-executive director not involved in day-to-day affairs cannot be roped in merely by virtue of office. And in Sunil Bharti Mittal v. Central Bureau of Investigation, (2015) 4 SCC 609, the Court confirmed there’s no automatic vicarious criminal liability for a director absent attributable conduct or a specific role.
Who is an “officer in default” under Section 2(60)
The phrase that determines who actually gets prosecuted is “officer who is in default”, defined in Section 2(60) of the Companies Act, 2013. It captures whole-time directors, key managerial personnel, and, importantly, any director who is aware of a contravention (through board proceedings or otherwise) and fails to object, or who knowingly participates. A non-executive or independent director generally falls inside the net only where the statute, or their own conduct, places them there.
So the diligence defence and the “officer in default” definition are two sides of the same coin. One says when you’re caught; the other gives you the way out. But here’s the catch: invoking the diligence defence costs money and takes years, and that’s the exposure D&O is designed to fund. (If you’re new to the eligibility framework that defines who even qualifies for these seats, the rules on who qualifies as an independent director are the natural starting point.)
What IL&FS, Satyam and Manpasand teach about the limits of the shield
The case law tells a consistent story, and the regulatory orders fill in the rest. In the Satyam aftermath, the Supreme Court in Chintalapati Srinivasa Raju v. Securities and Exchange Board of India, (2018) 7 SCC 443 held that a non-executive or independent director who was not shown to be an insider to the fraud could not be held liable merely for board membership. That’s the statutory shield working as designed.
But the IL&FS episode showed the other edge. The SFIO’s public framing of former independent directors as “mute spectators” signalled that regulators would test the diligence limb hard, demanding evidence that directors actually engaged with the warnings in front of them. And the securities regulator’s scrutiny of a beverages company’s board drove it home: the independent directors’ “we couldn’t access the documents” defence failed because they offered no proof they had ever tried to obtain them. The diligence test, in other words, is evidentiary. You don’t win it by being honest. You win it by having a paper trail.
What does all this mean for the cover you buy? It means the realistic claim against an independent director is rarely “you’re guilty.” It’s “prove you weren’t negligent,” dragged out over years of investigation. That’s a defence-cost problem, and Side A cover with a generous defence-cost provision is the answer.
How insurance quietly shapes who will sit on Indian boards
Here’s a downstream effect almost no article connects. As liability exposure rose after IL&FS, qualified professionals began declining independent directorships, or accepting them only on the condition of solid D&O cover with dedicated limits. Insurance, in effect, became a gatekeeper for board talent. A company that can’t offer credible cover struggles to attract credible independent directors, which weakens its governance, which raises its risk, which raises its premium. It’s a feedback loop, and the better-governed companies are increasingly the ones that can both buy and afford the cover.
What D&O insurance does NOT cover: exclusions and the fraud/fines traps
A D&O policy is generous, but it’s not a blank cheque, and the exclusions are where the genuinely dangerous surprises live. Most disputes between directors and insurers don’t turn on whether the policy covers a wrongful act. They turn on whether an exclusion knocks the whole claim out. Understanding the exclusions isn’t pessimism. It’s the only way to buy cover that actually responds when you need it.
Which gaps catch directors most often? Three: fraud that’s been proven, fines that the law won’t let anyone insure, and a proposal form that turns out to be inaccurate. Let’s take each.
The standard exclusions
Almost every Indian D&O policy carries the same core exclusions. The big ones are:
- Fraud and dishonesty: deliberate dishonest or fraudulent acts, once finally established by judgment or admission, are not covered.
- Prior and pending litigation: claims or circumstances already known, notified or in progress before the policy’s inception or retroactive date.
- Bodily injury and property damage: these belong to general liability or other policies, not D&O.
- Insured versus insured: claims brought by one insured against another (with carve-backs, discussed in the FAQ), designed to stop collusive in-house claims.
- Known circumstances and deliberate non-disclosure: anything the company knew about and failed to disclose at proposal stage.
The point isn’t to memorise the list. It’s to negotiate the wording, because the difference between “alleged fraud” and “finally adjudicated fraud” in the exclusion clause decides whether your defence costs are funded while the fraud allegation is still being fought.
Why regulatory fines and penalties are largely uninsurable
Here’s an India-specific point that trips up almost everyone. Regulatory fines and penalties imposed for a director’s own wrongdoing are largely uninsurable under Indian law, because insuring a penalty would defeat its deterrent purpose and offend public policy. So if SEBI imposes a monetary penalty on a director under Section 447 of the Companies Act, 2013 (fraud) or a securities-law provision, the policy will typically fund the defence costs of contesting it but will not reimburse the penalty itself.
This is the single biggest gap between what directors think D&O does and what it actually does. The policy is a defence-cost engine far more than a penalty-payment fund. Defence costs, investigation costs and civil damages to third parties are the heart of the cover; statutory penalties for your own misconduct generally are not. Plan accordingly.
Fraud severability and misrepresentation in the proposal form
Two nuances here can save (or sink) a claim. The first is fraud severability. If one director commits fraud, do the honest co-directors lose their cover too? Under a well-drafted policy with a severability clause, no: the fraud exclusion is applied separately to each insured, so the dishonest director’s conduct isn’t imputed to the innocent ones. This carve-back is essential, and you should confirm it’s in your wording.
The second is the proposal form. A material misrepresentation or non-disclosure when applying for the policy can void the cover entirely, and Indian courts have upheld insurers’ rights to repudiate on this ground. The Supreme Court’s reasoning on materiality and non-disclosure in insurance contracts in Satwant Kaur Sandhu v. New India Assurance Company Ltd., (2009) 8 SCC 316 underlines that an inaccurate or incomplete proposal is a fatal defect, not a technicality. There’s also litigation arising directly out of D&O cover itself, such as the insurer-coverage dispute in V.S. Prabhakara Gupta v. Tata AIG General Insurance Co. Ltd., Arbitration Application No. 122 of 2016 (Telangana High Court), which is a reminder that the policy is only as good as the proposal that procured it.
| Exclusion | What it means | Practical workaround |
|---|---|---|
| Fraud / dishonesty | No cover for finally proven fraud | Negotiate “final adjudication” wording so defence costs run until proven; add severability |
| Regulatory fines / penalties | Penalties for own wrongdoing uninsurable | Accept the gap; maximise defence-cost and investigation-cost cover instead |
| Prior / pending litigation | Known issues before inception excluded | Disclose fully; set a favourable retroactive date |
| Insured vs insured | In-house claims excluded | Secure carve-backs for derivative actions, employment claims, insolvency-rep claims |
| Proposal misrepresentation | Inaccurate disclosure voids cover | Treat the proposal form like a regulatory filing; verify every figure |
Tighter exclusions and sub-limits as cover spreads
There’s a quieter trend worth watching. As D&O cover spreads down-market, insurers worry about moral hazard: broad cover can blunt the deterrent the liability regime was built to create. The response has been tighter exclusions, more sub-limits and harder proposal-form scrutiny. So even as more companies buy cover, the cover each one gets is, in places, narrower than it was five years ago. The lesson? Read this year’s wording, not last year’s, and don’t assume a renewal carries forward the same terms.
D&O exclusions and uninsurable-risk traps
What a typical D&O policy will not pay, and what you can negotiate
How much does D&O insurance cost in India? Premium and coverage-limit framework
Everyone wants the number first, so here it is with a caveat: D&O premiums in India are driven by company stage, sector and risk profile, and the indicative ranges below are starting points, not quotes. A clean early-stage company might pay in the low tens of thousands of rupees a year for Rs 1 crore of cover, while a large listed entity with securities exposure can pay several lakh or far more. The real skill isn’t reading the price. It’s matching the limit to the risk.
Why does the same Rs 5 crore cover cost one company Rs 40,000 and another Rs 4 lakh? Because the premium is a risk score, not a sticker price. Let’s break down the number, then the limit.
Indicative D&O premiums by company stage
| Company stage | Typical cover (sum insured) | Premium brokers typically quote (annual, indicative) | Who it suits |
|---|---|---|---|
| Early-stage / startup | Rs 1 crore | Roughly Rs 20,000 to Rs 30,000 | Seed to Series A startups; small private companies |
| Growth-stage | Rs 5 crore | Roughly Rs 40,000 to Rs 50,000 | Funded scale-ups; mid-size unlisted companies |
| Large / listed | Rs 10 crore and above | Roughly Rs 70,000 upward, often into several lakh | Listed companies; high-revenue or regulated entities |
These are indicative ranges brokers commonly quote for clean risks, not firm prices, and no single published source fixes them; treat every figure as a starting point for a conversation, not a budget line. Actual premiums vary widely with the factors below, and large listed entities with active securities-litigation exposure routinely pay multiples of the top range. The only reliable number is the one an underwriter puts in writing for your specific company.
What factors decide your premium
A D&O underwriter prices governance, not just turnover. The main levers are:
- Sector and risk profile: financial services, pharma, crypto and listed entities price higher than a low-risk private services firm.
- Financial health: revenue, debt levels, audit quality and any going-concern flags.
- Listing status and market cap: listed entities, especially those with US-linked securities exposure, carry Side C risk that drives price up sharply.
- Claims and litigation history: prior D&O claims, regulatory actions or pending litigation harden the rate.
- Governance quality: board composition, independent-director ratio, audit-committee strength and disclosure track record.
The practical reality is that an underwriter who can’t price your risk will simply decline or quote a punitive number. And that itself is a signal worth heeding.
What coverage limit should your company choose?
Sizing the limit is where most boards either over-insure or, more dangerously, under-insure. There’s no universal number, but a stage-based framework gets you close.
| Stage / profile | Suggested limit | Side emphasis | Key driver |
|---|---|---|---|
| Early-stage startup | Rs 1 to 2 crore | Side A and B | Founder and early-director protection; investor term-sheet requirement |
| Growth-stage / funded | Rs 5 to 10 crore | Side A, B, C | Investor disputes, employment claims, scaling regulatory exposure |
| Listed (top 1,000) | Rs 10 crore and up, plus Side A DIC | Side A DIC ring-fenced | SEBI Reg 25(10) mandate; securities-litigation exposure; dedicated ID limit |
| NGO / Section 8 | Rs 1 to 5 crore | Side A | Unpaid professional directors; donor and regulatory scrutiny |
Tie the limit back to the three sides. If your worry is “what happens to me personally if the company fails,” that’s a Side A question, and you want a dedicated or ring-fenced limit so company-level claims can’t swallow your protection. This is the connection competitors almost never make: the SEBI-mandated independent-director cover is only meaningful if its limit isn’t eroded by the company’s own Side C securities claims.
Why premiums are hardening and where prices go next
D&O is in a hardening market, and we’d expect that to continue, with the usual caveat that insurance cycles can turn. Brokers have reported roughly 25 to 35 percent year-on-year demand growth in recent years, alongside steep rate hikes as claims frequency rose. New risk vectors are widening the exposure that drives those prices: data-breach liability under the Digital Personal Data Protection Act, 2023, ESG and greenwashing claims, AI-governance decisions, and cyber events that increasingly land on the board. Where do prices go next? Most likely up, especially for listed and regulated entities, though competition among insurers may soften terms for clean, well-governed mid-market companies. Treat any forecast cautiously: the one safe prediction is that governance quality will matter more to your premium, not less.
D&O insurance premiums by company stage (India)
Premiums brokers typically quote: annual, illustrative ranges
Indicative ranges, not quotesClaims-made policies, retroactive date and Extended Reporting Period (run-off)
Two policies can have identical limits and exclusions and still behave completely differently, because of when they respond. D&O insurance is almost always written on a “claims-made” basis, and that single design choice creates the traps that catch retiring directors and acquired companies. If you understand nothing else about the mechanics, understand this: it’s the date the claim is made that matters, not the date you allegedly did something wrong.
Why does a director who resigned cleanly still get a nasty surprise two years later? Because their cover lapsed and the claim arrived after. Here’s how the timing works.
Claims-made vs occurrence
An “occurrence” policy covers events that happen during the policy period, whenever the claim is eventually made. A “claims-made” policy covers claims first made against the insured during the policy period, regardless of when the underlying act occurred (subject to the retroactive date). D&O is claims-made because director liability is a long-tail risk: a decision made today might not be challenged for five years, and insurers can’t price open-ended exposure.
The practical consequence is stark. If your policy isn’t in force when the claim is made, you’re not covered, even if the act happened while you were insured. That’s why continuity of cover, not just having cover at some point, is what protects you.
The retroactive date and why it matters
The retroactive date is the line in the sand: the policy covers wrongful acts committed on or after this date (and claimed during the policy period), but nothing before it. A new policy with today’s retroactive date leaves every past board decision uninsured. When you renew or switch insurers, you want the retroactive date pulled back as far as possible (ideally to your original inception date) so that historic acts stay covered. Lose continuity, and you create a coverage gap that no amount of premium fixes retrospectively.
Extended Reporting Period (ERP) and run-off cover
This is the provision retiring directors most often overlook. An Extended Reporting Period (ERP), often called “run-off” cover, extends the time within which a claim can be reported after the policy ends, for wrongful acts committed before it ended. So if you resign or retire and the company later lets the policy lapse or doesn’t renew, an ERP lets a claim made against you years later still be reported under the old policy.
It matters most in two scenarios. First, the individual director who steps down: without ERP, you’re exposed for acts during your tenure once the policy expires. Second, mergers and acquisitions. On a change of control, the target’s D&O policy typically goes into run-off, and a multi-year run-off (six or seven years is increasingly the ask) is essential to protect the old board for pre-deal acts. What happens to D&O cover during an acquisition? It freezes and runs off, which is exactly why directors of a company being sold should negotiate the run-off term as part of the deal, not after. (The change-of-control mechanics tie into broader deal structuring, which governs what happens to director liability on a change of control.) Longer run-off and ERP terms are becoming a standard ask, and we’d expect that trend to hold.
D&O vs professional indemnity, E&O and company indemnification
Directors routinely confuse D&O with two neighbouring products and with the company’s own promise to protect them. The confusion is costly, because each responds to a different kind of claim, and assuming you’re covered by the wrong one is how gaps appear. So what’s the actual difference, and where do they overlap?
In a sentence: D&O covers management decisions, professional indemnity and E&O cover service or advice failures, and company indemnification is a contractual promise that only works if the company is solvent and the law allows it.
D&O vs professional indemnity vs E&O
| Factor | D&O | Professional Indemnity (PI) | Errors & Omissions (E&O) |
|---|---|---|---|
| What it covers | Wrongful acts in managing the company | Negligence in providing professional services | Errors or omissions in delivering a service or product |
| Who is insured | Directors, officers, sometimes the company | The firm and its professionals | The business and its service staff |
| Typical claimant | Shareholders, regulators, employees, creditors | Clients of professional services | Customers or clients |
| Trigger | Breach of management duty | Failure to meet a professional standard | Service or advice failure causing loss |
PI and E&O overlap heavily (E&O is often treated as a subset of PI), and both protect against claims that a service was performed negligently. D&O is different in kind: it protects the people who govern, not the people who deliver. A director can need all three, but only D&O answers when a shareholder alleges the board breached its duties.
How D&O interacts with company indemnification under Sections 197 and 463
A company can, within limits, indemnify its directors against certain liabilities. Section 197 of the Companies Act, 2013 governs managerial remuneration and the bounds of what a company may pay, and Section 463 of the Companies Act, 2013 allows a court to relieve a director from liability where they acted honestly and reasonably. But indemnification has two fatal weaknesses: it’s worthless if the company is insolvent, and the law bars indemnifying a director against certain liabilities (you can’t be indemnified for your own fraud, for instance).
This is exactly where Side A D&O cover earns its place. Indemnification and insurance are complementary: the company indemnifies where it can and is solvent (Side B reimburses it), and Side A catches the director when indemnification fails or is legally unavailable. Relying on indemnification alone is the mistake we see most often, and it’s the one that hurts most when a company collapses.
Tax treatment and accounting of D&O premiums in India
Almost no competitor touches this, yet it’s one of the first questions a CFO asks. The tax treatment of D&O premiums in India turns on two separate questions: can the company deduct the premium, and is the director taxed on a benefit? The answers are reasonably settled in practice but worth confirming with a tax adviser for your specific facts.
So is it deductible, and is it a perquisite? Generally yes to the first, and generally no to the second, with reasoning below.
Is the D&O premium tax-deductible for the company?
A D&O premium paid by the company is generally allowable as a business expense under the Income-tax Act, 1961, on the basis that protecting directors and officers is incurred wholly and exclusively for the purposes of the business. The cover exists so that the people running the company can do so without unmanageable personal risk, which is a legitimate business purpose. The deduction is the standard market position, though we’d flag that the facts (especially whether the cover principally benefits the company or specific individuals) can affect the analysis. Confirm with your tax adviser.
Is company-paid D&O premium a taxable perquisite?
The more debated question: if the company pays the premium for a director’s benefit, is it a taxable perquisite in the director’s hands? The prevailing view is that it is not, because the policy primarily protects the company’s interests and the directors’ cover is incidental to that, rather than a personal benefit enjoyed in lieu of remuneration. The risk insured is one the director carries by virtue of office, not a personal advantage. That said, the position isn’t beyond argument, and the treatment can depend on how the policy is structured and who it principally benefits. This is precisely the kind of point to confirm with a qualified tax adviser before relying on it.
Best D&O insurance companies in India and how the cover differs from global standards
“Which is the best D&O insurer in India?” is the wrong question, and any honest guide will say so. The “best” policy is the one whose wording fits your risk, not the one with the biggest brand. What’s useful is knowing who the established players are and how Indian cover differs from what a US-listed parent might expect. So who writes D&O in India, and what’s different here?
A handful of large general insurers dominate, and the cover they offer is meaningfully narrower than US D&O in one crucial respect: fines and penalties.
Major D&O insurers in India
The established D&O insurers in the Indian market include ICICI Lombard, HDFC Ergo, Tata AIG, Bajaj Allianz and New India Assurance, among others. This is a factual list of market participants, not an endorsement or ranking; LawSikho doesn’t recommend a specific insurer, and the right choice depends on your sector, size and the specific wording on offer. What separates a good policy from a poor one isn’t the logo. It’s the definition of “wrongful act,” the breadth of the investigation-cost cover, the severability clause, the defence-cost advancement and the run-off terms. Read those, and compare like for like.
How Indian D&O differs from US and global cover
Indian D&O cover differs from US and global standards in a few important ways. The biggest is the uninsurability of regulatory fines and penalties under Indian public policy, which is far stricter than in some jurisdictions. Indian cover is also shaped by a distinct regulatory environment: SEBI, the SFIO, the ED and the NCLT are the bodies a director is most likely to face, and the policy’s investigation-cost cover should be mapped to those specific processes. The scope of “securities claim” cover (Side C) is narrower for purely Indian-listed companies than for those with US-listing exposure. If your company has a US-listed ADR or a foreign parent, expect the programme to be built to global standards, with the Indian layer slotting underneath. Why does this matter? Because a director who assumes US-style breadth on an Indian policy is assuming cover that isn’t there.
How to buy D&O insurance in India: documents, process and timeline
Buying D&O cover is less about filling a form and more about disclosing accurately, because (as the exclusions section showed) the proposal form is the document that can later void your cover. Get the buying process right and you avoid the most common reason claims fail. So what do you actually need, and how long does it take?
You’ll need the company’s financials and governance details for the proposal, the buying cycle typically runs a few weeks, and claims, when they come, settle over months or longer depending on complexity.
Documents and information you need for the proposal form
For a D&O proposal, insurers typically ask for:
- Audited financial statements (usually the last two to three years) and the latest management accounts.
- Details of the board and key managerial personnel, including the independent-director ratio.
- Disclosure of any past or pending litigation, regulatory actions, or known circumstances likely to give rise to a claim.
- The company’s shareholding pattern, listing status and any group or subsidiary structure.
- Details of any prior D&O cover, claims history and the existing retroactive date.
Treat every one of these as you would a regulatory filing. The accuracy of the proposal is what keeps the cover alive, which ties straight back to the misrepresentation exclusion: an outdated or careless disclosure here is the most common cause of a later denial.
The buying process and how long a claim takes to settle
The process usually runs: submit the proposal and supporting documents, receive quotes (often through a broker who markets the risk to multiple insurers), negotiate the wording and limits, then bind cover. For a clean, mid-size company, that’s typically two to four weeks; complex or listed risks take longer because underwriters scrutinise more. Can a director buy D&O personally? Generally no in the standard market, since the policy is taken out by the company for the benefit of its directors and officers, though dedicated individual cover exists in niche cases.
How long does a D&O claim take to settle in India? Honestly, it varies enormously. A straightforward defence-cost claim may see costs advanced within weeks of notification, but a contested liability matter can run for years through the courts, with the insurer funding the defence throughout. The key is prompt notification: tell the insurer as soon as a claim or circumstance arises, because late notice under a claims-made policy is itself a ground for denial.
Frequently asked questions
1. Is D&O insurance mandatory in India? Not generally. Since 1 January 2022, the top 1,000 listed entities by market capitalisation must carry D&O cover for their independent directors under Regulation 25(10) of the SEBI LODR Regulations. For everyone else it is risk based, though term sheets often make it contractually mandatory.
2. What does D&O insurance actually cover? It covers the legal defence costs, settlements and civil damages a director or officer faces when accused of a wrongful act in managing the company, such as a breach of duty, error or misstatement. It also funds many investigation costs. It does not cover commercial losses, bodily injury or fines.
3. What are Side A, Side B and Side C in D&O insurance? Side A protects individual directors and officers directly when the company cannot or will not indemnify them, for example in insolvency. Side B reimburses the company for amounts it has lawfully paid to indemnify directors. Side C covers the company entity itself, typically for securities claims.
4. What is the difference between Side A and Side B cover? Side A pays the director directly when no indemnity is available, so it responds in insolvency or where the law bars indemnification. Side B does not pay the director; it reimburses the company after it has indemnified the director. For an independent director, Side A is the critical layer.
5. Does D&O insurance cover fraud? It covers the cost of defending a fraud allegation, but not fraud that is finally proven by judgment or admission. A well drafted policy advances defence costs while the allegation is contested and uses a severability clause so one director fraud does not strip cover from honest co-directors.
6. How much does D&O insurance cost in India? It depends on company stage, sector and risk profile. As an indicative guide: roughly Rs 20,000 to Rs 30,000 a year for Rs 1 crore of cover at early stage, Rs 40,000 to Rs 50,000 for Rs 5 crore at growth stage, and Rs 70,000 upward for Rs 10 crore or more. Listed companies pay considerably more.
7. How much does D&O insurance cost for a startup? A clean early stage startup buying around Rs 1 crore of cover can typically expect an indicative annual premium near Rs 20,000 to Rs 30,000, though sector and funding stage shift this. Funded startups often need a higher limit because investor disputes and employment claims scale with growth.
8. Are past or retired directors covered by D&O insurance? Yes, provided cover continuity is maintained. Because D&O is claims made, a retired director is protected for claims made while a policy is in force with a retroactive date covering their tenure. If the company lets the policy lapse, they need Extended Reporting Period (run-off) cover.
9. What is a claims made policy and how does it differ from occurrence? A claims made policy covers claims first made against you during the policy period, regardless of when the act happened, subject to the retroactive date. An occurrence policy covers events during the period whenever the claim arrives. D&O is almost always claims made, as liability is long tail.
10. Does D&O insurance cover the company itself or only individuals? Both, depending on the side. Side A and Side B relate to directors and officers, paying them directly or reimbursing the company for indemnifying them. Side C covers the company own liability, usually securities claims for listed companies. A standard policy protects individuals primarily.
11. Is D&O the same as professional indemnity insurance? No. D&O covers wrongful acts in governing and managing a company, the kind of claim shareholders, regulators and creditors bring. Professional indemnity covers negligence in delivering professional services to clients. A director who is also a practising professional may need both.
12. Is the D&O premium tax-deductible for the company in India? Generally yes. A D&O premium paid by a company is usually treated as an allowable business expense under the Income-tax Act, 1961, on the basis that it is incurred wholly and exclusively for the business. The exact position can depend on the facts, so confirm with a qualified tax adviser.
13. Which insurers offer D&O insurance in India? Established providers include ICICI Lombard, HDFC Ergo, Tata AIG, Bajaj Allianz and New India Assurance, among other general insurers. This is not a ranking or endorsement. The right insurer depends on your sector, size and, above all, the policy wording, which matters far more than the brand.
14. How is D&O insurance in India different from global standards? The biggest difference is that Indian public policy makes regulatory fines and penalties largely uninsurable, stricter than some jurisdictions. Indian cover is built around SEBI, SFIO, ED and NCLT processes, and the Side C securities cover is narrower for purely Indian listed companies.
15. Do startups really need D&O if investors do not require it? Often, yes. Founders and early directors are personally exposed under company law from incorporation, and a single employment dispute can drain a young company cash. Even without an investor mandate, modest cover of around Rs 1 crore is cheap. Most investors require it by Series A anyway.
16. Does a private unlisted company need D&O insurance? There is no SEBI mandate for private companies, but their directors carry the same liability under the Companies Act, 2013, and the company indemnity is worthless if it becomes insolvent. Private companies with external investors or litigation risk should treat D&O as a practical necessity.
17. What is the insured versus insured exclusion and why does it matter? It is a standard exclusion that blocks claims brought by one insured against another, designed to stop collusive in-house claims. Read too broadly, it could bar legitimate claims. Good policies carve back exceptions for derivative actions, employment and insolvency representative claims.
18. Does D&O cover defence costs even before liability is proven? Yes, that is the heart of the cover. A well drafted D&O policy advances defence costs as they are incurred, before any finding of liability, because most directors spend far more defending allegations than they ever pay in damages. Confirm your policy has a duty to advance defence costs provision.
References
Case Law
- Chintalapati Srinivasa Raju v. Securities and Exchange Board of India, (2018) 7 SCC 443
- Pooja Ravinder Devidasani v. State of Maharashtra, (2014) 16 SCC 1: AIR 2015 SC 675
- Satwant Kaur Sandhu v. New India Assurance Company Ltd., (2009) 8 SCC 316: 2009 AIR SCW 7213
- S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89: AIR 2005 SC 3512
- Sunil Bharti Mittal v. Central Bureau of Investigation, (2015) 4 SCC 609: AIR 2015 SC 923
- V.S. Prabhakara Gupta v. Tata AIG General Insurance Co. Ltd., Arbitration Application No. 122 of 2016 (Telangana High Court, 1 April 2022)
Statutes
- Negotiable Instruments Act, 1881: section cited 141.
- Companies Act, 2013: sections cited 2(60), 149(12), 166, 197, 447, 463.
- SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015: Regulation 25(10) (D&O cover for independent directors of the top 1,000 listed entities, effective 1 January 2022).
- Digital Personal Data Protection Act, 2023: referenced as an emerging D&O risk vector.
Secondary and regulatory sources
- Income-tax Act, 1961: referenced for the business-expense deductibility reasoning on D&O premiums.
- Insurance Regulatory and Development Authority of India (IRDAI): policyholder-protection and claims-processing norms relevant to misrepresentation-based repudiation.
This article is for informational purposes only and does not constitute legal advice. For specific legal guidance, consult a qualified legal professional.
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