Does D&O cover a claim by an insolvency administrator?

Not always – and this is exactly the point that turns two outwardly similar D&O policies into completely different products. Some quotes carry a special condition that excludes insolvency risks in full, and therefore also claims by the administrator and by creditors against the board. Sometimes it can be removed for an additional premium, sometimes the insurer writes that it cannot be removed. If a policy has such an exclusion it can still be valuable, but it no longer covers the very scenario that makes many people buy D&O in the first place. In this scenario only the Side A part responds, because an insolvent company will not indemnify its officer for anything.

When this answer applies to your situation

• The company has significant liabilities or its shares are pledged.
• The industry is cyclical or the company is growing fast on borrowed money.
• A board member wants to understand what happens to them after leaving office.
• The company is newly founded and the first annual report has not yet been filed.

What can change the answer

• Whether the policy has a special condition on insolvency and how broadly it is worded.
• Whether the exclusion applies to the whole insolvency process or only to certain types of claim.
• The basis on which the claim is brought: Section 169 of the Komerclikums (the Latvian Commercial Law) on losses caused to the company, or Section 72.1 of the Maksātnespējas likums (the Latvian Insolvency Law) on failure to hand over accounting records.
• Whether Side A cover also responds once the company can no longer indemnify the officer.
• Whether the policy has been in force continuously and whether the continuity date was carried over when the insurer changed.

What to check in the policy or quote

• The list of special conditions in the policy, not just in the wording
• Written confirmation from the insurer on whether the exclusion can be removed
• The Side A wording for when the company is not permitted to indemnify
• The retroactive date and the continuity date
• The extended reporting period if the policy is not renewed

The typical mistake

Quotes are compared by limit and premium, because both are on the first page. The insolvency exclusion sits in the special conditions section, and it is what decides whether the policy will respond in the scenario with the greatest personal risk. Once you have read it, the cheapest quote sometimes turns out not to be cheaper, but to be a different product.

Example

A situation typical in practice (generalised example, not a specific client)

A typical situation: a growing company with pledged shares receives two quotes with the same limit. The cheaper one carries a special condition that excludes insolvency risks, and the insurer confirms in writing that it cannot be removed. The more expensive one has no such exclusion. Here the price difference is payment for exactly the risk the policy is being bought for – and at that point it is no longer an overpayment.

Related content

• Directors' and officers' liability insurance (D&O)

This is not individual insurance advice; actual cover always depends on the chosen insurer's wording and the special conditions of the policy.