What does directors and officers (D&O) insurance cover in India?

Most founders I meet think of D&O as a listed-company formality — until the day a former employee, a regulator, or an investor names them personally in a notice. That's when the question stops being academic.

Running a company means signing things. Every one of those signatures — a hiring call, a funding term, a statutory filing — can be second-guessed later by someone it affected. A directors and officers liability policy exists for exactly that moment: it stands between a personal allegation and a director's own bank account. As an IRDAI-licensed broker, what we'd want any leader to understand first is not the brochure list of features, but the simple shape of what the cover does and doesn't reach.

What D&O insurance actually pays for

A D&O policy in India pays the legal defence costs, settlements and damages that arise when a director or officer is accused of a wrongful act — a breach of duty, negligence, misstatement or mismanagement — committed in their official role. It can also fund the cost of responding to a regulatory investigation, often before any verdict is reached.

Legal defence costs

This is the part that matters first and most. Good policies advance defence costs — meaning the insurer starts paying the lawyers as the bills arrive, rather than waiting for the case to end. For an individual director facing a well-resourced opponent, that timing is the difference between a real defence and a forced settlement.

Settlements and damages

Where a claim is settled or damages are awarded for a covered wrongful act, the policy responds up to its limit. The protection extends to the personal assets of the director or officer — the home, the savings — which is the whole point of the cover.

Regulatory investigation costs

In India, a large share of director exposure comes not from lawsuits but from inquiries — by SEBI, the Registrar of Companies, or other authorities. A well-structured D&O policy can cover the cost of being represented through an investigation, examination or inquiry, which is often where the early, expensive work happens.

The claim that arrives before the verdict

Here's the part the textbook definitions miss. When a D&O claim lands on an Indian founder, it almost never arrives as a tidy "lawsuit". It arrives as a letter — a regulator's notice, a shareholder's legal demand, an ex-director's allegation — and the clock starts immediately, long before anyone has decided who was right.

In the matters our claims team has walked clients through, the sequence is consistent: the notice comes first, the question of "will my own money pay for this?"comes second, and the relief — when there is cover — is that defence costs start moving before the merits are settled. That's the work our Red Carpet claims team takes on: not promising an outcome, but making sure the director isn't fighting the paperwork and the allegation at the same time. D&O insurance doesn't decide who was right — it makes sure a director can afford to defend the decision while that's being decided.

The three sides — Side A, B and C, in plain terms

D&O cover is assembled from three "sides". Side A protects the individual director or officer directly when the company cannot indemnify them. Side B reimburses the company when it has indemnified them. Side C covers the company itself, typically for securities-related claims. Most policies combine all three.

What D&O insurance does not cover

D&O insurance does not cover proven fraud, dishonest or deliberate criminal acts, claims or circumstances you already knew about before the policy began, bodily injury and property damage, or fines and penalties that the law treats as punitive. Where one cover ends, another often begins — see how D&O compares with EPLI and general liability. Defence costs are usually advanced until wrongdoing is actually established.

One nuance worth holding onto: even where fraud is alleged, a good policy keeps funding the defence until that fraud is actually proven in a final judgment. The exclusion bites on the verdict, not the accusation — which is precisely when an honest director most needs the cover to hold.

Who legally needs D&O insurance in India?

D&O insurance is not mandatory for most Indian companies. Under SEBI's LODR Regulations, the top-1,000 listed companies by market capitalisation must provide it for their independent directors, effective from 1 January 2022. For everyone else it's voluntary — but increasingly expected by investors and lenders.

The legal scaffolding sits in two places. Regulation 25(10) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended with effect from 1 January 2022, requires the top-1,000 listed entities by market capitalisation to undertake D&O cover for all independent directors, in such quantum and risk as the board decides — a threshold raised from the earlier top-500. Separately, Section 197(13) of the Companies Act, 2013confirms a company may pay the D&O premium for its directors and key personnel — except where a person is found liable for fraud, breach of trust or wilful default, in which case the premium attributable to them is treated as part of their remuneration.

For a private company, a startup, or an unlisted firm, none of this compels you to buy cover. But the moment you raise institutional capital, take on debt, or invite an independent director onto your board, expect D&O to appear on someone's due-diligence checklist — and to be asked what your sum insured is and when it was last reviewed.

This article is general information on what D&O cover does and doesn't reach — it isn't advice on a specific policy, insurer or situation, and nothing here is an offer.

A note on this page. Everything here is general information, not insurance, legal, financial or tax advice, and nothing is an offer. For advice about your situation, talk to us.