Directors and Officers Insurance Tips for Venture-Backed Companies

When a venture capital or private equity firm invests in a portfolio company (PC) and places a general partner on the PC’s board, they typically require that the PC agree to defend and indemnify the board member in any litigation arising out of their board service, and to purchase directors’ and officers’ liability insurance. However, the D&O insurance requirements are typically quite vague, and down the road the parties may be surprised to learn of key gaps in the PC’s coverage. These gaps are usually discovered when the parties need the coverage most – i.e., after a lawsuit has been filed, naming board members as defendants. Here are two examples I’ve come across in representing venture capital and private equity firms: