Directors and Officers Liability Insurance in India 2026: D&O Cover, Section 197(13), Defence Costs, Exclusions and Board Protection

Quick answer: Directors and Officers liability insurance generally provides specified protection for claims made against directors, officers and sometimes the company, subject to the wording of the policy, limits, retentions and exclusions. Section 197(13) of the Companies Act, 2013 expressly addresses insurance taken by a company for certain managerial personnel against liability arising from negligence, default, misfeasance, breach of duty or breach of trust and the treatment of premium for remuneration purposes. The actual scope of protection, however, depends on the policy. Boards should review D&O cover before a crisis, not after a claim arrives.

1. Why D&O Insurance Matters

Modern directors face exposure from shareholders, regulators, lenders, employees, insolvency processes, tax authorities, counterparties and internal disputes. Even where a director ultimately succeeds, defence costs can be substantial. The practical purpose of D&O insurance is therefore not only to pay judgments or settlements within coverage; it can also fund legal defence and respond to investigations depending on policy language.

Insurance is one layer of protection. The others include lawful decision-making, accurate minutes, conflict management, compliance systems, contractual indemnities where legally permissible and timely legal advice.

2. Section 197(13) of the Companies Act, 2013

Section 197(13) addresses insurance taken by a company on behalf of its managing director, whole-time director, manager, CEO, CFO or Company Secretary for indemnifying specified liabilities arising from negligence, default, misfeasance, breach of duty or breach of trust. The statutory text also addresses how the premium is treated for remuneration purposes, including where the insured person is proved guilty. The official Companies Act is available at India Code.

Companies should not infer from Section 197(13) that every liability is legally insurable or that every D&O policy covers the same risks. Policy wording, public policy, regulatory restrictions and the character of the conduct remain important.

3. What a D&O Policy Usually Tries to Protect

Policies commonly distinguish between direct protection for individual directors and officers, reimbursement to the company where it has indemnified them, and in some cases entity coverage for defined claims. The precise structure varies by insurer and product.

Boards should ask who is an insured person, whether former directors are covered, whether nominees and independent directors are included, whether subsidiaries are covered and how acquisitions or disposals affect the policy.

4. Side A, Side B and Side C Concepts

Many D&O policies use the Side A, Side B and Side C framework. Side A generally concerns non-indemnifiable loss of individual directors or officers. Side B generally reimburses the company when it lawfully indemnifies insured persons. Side C may provide entity coverage for defined claims, often subject to specific wording.

These labels are market conventions rather than substitutes for reading the actual policy. The insuring clauses, definitions and exclusions control.

5. Defence Costs

Defence costs can be the most immediately valuable part of D&O cover. A director may need counsel long before liability is established. The policy should be reviewed for advancement of defence costs, consent requirements, panel counsel provisions, allocation where insured and uninsured parties are involved, and whether defence costs erode the overall policy limit.

A company should notify the insurer early when a matter may qualify. Late notice can create avoidable coverage disputes.

6. Regulatory Investigations

Directors may be called to respond to regulatory inquiries, inspections or investigations. Some D&O policies extend to defined investigation costs, while others trigger only after a formal claim or specified proceeding begins.

The Board should understand the trigger before assuming that a regulatory letter is covered. The definition of “claim” is often one of the most important provisions in the policy.

7. Shareholder and Investor Claims

Shareholders may allege misleading disclosure, dilution, conflict, oppression, mismanagement or breach of duty. Depending on the claim and policy, D&O insurance may respond to defence costs or covered liabilities.

Corporate governance remains the first defence. See our guide on Shareholder and Founder Disputes in India.

8. Independent Directors

Independent directors often insist on D&O cover before joining a Board because they may have limited involvement in daily operations but still face notices and proceedings. Section 149(12) creates a specific statutory framework for independent-director liability under the Companies Act.

The policy should be checked for dedicated Side A protection, priority of payments and whether independent directors have access to separate limits in severe cases. Read our Independent Director Liability guide.

9. Promoter Directors and Executive Directors

Executive and promoter directors may face a different risk profile because they participate directly in management, finance, contracting and operational decisions. Claims may allege personal guarantees, fraud, tax liability, diversion or misstatement.

Not all of these exposures are insurable. Personal guarantee liability, for example, is conceptually different from a management-liability claim. Boards should distinguish insurance from other personal exposure.

10. Wrongful Act Definitions

D&O policies usually depend on a defined “wrongful act.” That definition may cover actual or alleged error, omission, misstatement, neglect, breach of duty or similar conduct by an insured person in the insured capacity.

The capacity requirement can matter. Conduct undertaken as shareholder, trustee, personal guarantor or director of an unrelated entity may fall outside the policy.

11. Claims-Made Structure

D&O insurance is commonly written on a claims-made basis. Coverage may depend on when the claim is first made and reported, rather than when the underlying conduct occurred, subject to retroactive dates and policy wording.

This is why renewal continuity, notice of circumstances and run-off cover are important. A company should not change insurers without considering historical exposure.

12. Prior and Pending Litigation Exclusions

Policies may exclude disputes that existed or were known before inception. If a company buys insurance after receiving a legal notice, it should not assume the new policy will cover the existing matter.

Applications should disclose material facts accurately. Misrepresentation during placement can create later coverage disputes.

13. Fraud and Dishonesty Exclusions

D&O policies commonly contain exclusions for fraud, dishonesty, criminal conduct or improper personal profit, often with wording concerning when such conduct must be established. The timing of the exclusion matters because defence costs may still be advanced until a final adjudication or admission, depending on the policy.

Boards should examine the severability language so wrongdoing by one insured does not unnecessarily prejudice innocent directors.

14. Personal Profit and Remuneration Disputes

Claims alleging improper personal benefit, unauthorised remuneration or diversion may trigger exclusions. At the same time, allegations are not always ultimately proved.

The policy’s treatment of allegations versus established conduct should be reviewed before a dispute occurs.

15. Insured-versus-Insured Exclusions

Some policies restrict claims brought by one insured against another or by the company against insured persons, with exceptions for derivative claims, insolvency situations or employment matters depending on wording.

This exclusion can be highly relevant in founder and boardroom disputes. A company with concentrated promoter ownership should not treat it as boilerplate.

16. Employment Practices Liability

Employment claims may be covered under a separate Employment Practices Liability section or policy rather than ordinary D&O cover. Wrongful termination, discrimination, harassment and retaliation can have distinct treatment.

Companies should map management-liability insurance to actual HR risk instead of assuming all executive-related claims sit under one policy.

17. POSH and Harassment Claims

Claims connected to workplace sexual harassment can involve the company, senior management and individuals. Insurance response depends on policy wording, exclusions and applicable law.

Insurance cannot replace a compliant Internal Committee, fair inquiry or statutory process.

18. Cyber and Data Claims

A cyber incident may produce claims against directors for alleged oversight failures, but the primary event may belong under cyber insurance. The D&O and cyber policies should be reviewed together for overlaps and exclusions.

Boards should understand which policy responds to incident response, privacy claims, regulatory costs and derivative management-liability allegations.

19. Tax and GST Exposure

Directors can face statutory personal-liability provisions in defined tax circumstances. D&O insurance may contain tax exclusions or limited extensions. A policy should never be assumed to pay statutory tax liabilities or penalties.

See our guide on Directors’ Personal Liability for GST Dues.

20. Insolvency and IBC Risk

Insolvency can generate claims concerning wrongful conduct, preferential transactions, fraudulent trading, breach of duty and financial reporting. D&O policies should be reviewed for insolvency exclusions and the effect of appointment of a resolution professional or liquidator.

Run-off coverage may become especially important if the company enters insolvency or is acquired.

21. Fines, Penalties and Uninsurable Loss

Policies often exclude fines and penalties to the extent they are uninsurable under applicable law. Some policies provide limited coverage for certain civil penalties where legally permissible.

The governing-law clause and definition of “loss” should therefore be reviewed carefully. Marketing summaries are not enough.

22. Indemnification by the Company

Corporate indemnification and insurance are related but distinct. The company’s power to indemnify may be constrained by statute, articles, contracts and public policy. Insurance can provide protection where company indemnification is unavailable or insufficient.

Director appointment letters and indemnity arrangements should be reviewed alongside the D&O policy so they work together.

23. Defence Counsel Selection

Some policies require insurer consent before appointing counsel or incurring material defence costs. In high-stakes matters, the director may want separate counsel because of conflict with the company or other insureds.

The company should understand the consent process before emergency litigation begins.

24. Allocation Between Covered and Uncovered Matters

A proceeding may involve insured directors, uninsured parties, covered allegations and uncovered allegations. Allocation clauses determine how defence and settlement costs are divided.

Ambiguous allocation can produce significant disputes. This clause deserves negotiation for large organisations.

25. Policy Limits

A nominally large limit can be consumed rapidly if multiple directors require counsel and defence costs erode the same aggregate. Boards should consider the number of insureds, business scale, regulatory profile, investor base and cross-border exposure.

Dedicated Side A excess layers may be considered for independent directors and senior executives depending on risk appetite.

26. Retentions and Deductibles

The retention determines how much loss the company must absorb before the insurer responds under certain insuring clauses. Different claims may have different retentions.

The Board should understand the cash-flow impact rather than comparing policies only by premium.

27. Territorial and Jurisdictional Scope

Indian companies with foreign subsidiaries, investors or directors may face proceedings outside India. Policy territory and jurisdiction should match the group’s actual operations.

A domestic-only policy may be inadequate for a company raising international capital or operating abroad.

28. Subsidiaries and Newly Acquired Entities

Policies may automatically cover subsidiaries only within defined thresholds and may require notification for major acquisitions. Divested entities may need run-off protection for acts occurring before disposal.

M&A teams should therefore include D&O review in transaction checklists.

29. Run-Off or Tail Cover

When a company is acquired, merged or ceases operations, former directors can still face claims years later. Run-off coverage preserves protection for pre-transaction conduct for an agreed period.

Deal documents should address who purchases the tail, the period and policy quality rather than leaving it until closing.

30. Notice of Circumstances

Many policies permit or require notification of circumstances that may reasonably give rise to a claim. Timely notice can preserve coverage under the current policy.

Legal, finance and risk teams should have a process for escalating significant notices, investigations and disputes to the insurance function.

31. Board Review of D&O Cover

The Board or an appropriate committee should receive a periodic summary of D&O insurance: insurer, limits, retention, major exclusions, territory, run-off position and material changes at renewal.

This can sit within the wider Board Compliance Dashboard.

32. Questions to Ask at Renewal

• Who is insured?
• Are independent directors adequately protected?
• Are defence costs inside or outside the limit?
• How is “claim” defined?
• Are investigations covered?
• What fraud, prior-matter and insured-versus-insured exclusions apply?
• Does the policy cover subsidiaries and foreign operations?
• What notice obligations apply?
• Is run-off cover needed?
• How does D&O interact with cyber, EPLI and crime insurance?

33. D&O Insurance Is Not a Governance Substitute

A Board cannot insure its way out of poor process. Missing minutes, undisclosed conflicts, false statements, weak controls and ignored red flags can create liability and coverage problems simultaneously.

Insurance works best as the final financial layer behind good governance. See our Corporate Legal Risk Audit and Corporate Risk Register.

34. Frequently Asked Questions

Is D&O insurance mandatory for every Indian company?

Not as a universal rule for every company. Applicability of governance and insurance expectations varies, and companies should assess contractual, regulatory and risk requirements.

Does D&O cover fraud?

Policies commonly exclude established fraud or dishonesty, but the exact trigger and treatment of defence costs depend on wording.

Does D&O cover personal guarantees?

Ordinarily, personal guarantee liability is a separate contractual exposure and should not be assumed to be covered.

Can independent directors have separate protection?

Policies can include dedicated Side A structures or excess layers depending on the product and negotiation.

Does a policy pay regulatory fines?

Only to the extent the policy provides coverage and the amount is legally insurable. Many fines and penalties are excluded.

35. Conclusion

D&O insurance should be treated as a governance instrument, not merely an annual procurement item. The Board should know what claims trigger the policy, which individuals are protected, how defence costs are advanced, what exclusions apply and whether the limit is realistic for the organisation’s risk profile.

The best director-protection framework combines lawful governance, accurate board records, timely legal advice, conflict management, appropriate indemnification and carefully negotiated insurance. No single layer is sufficient. Together, they can substantially improve the company’s ability to respond when a director receives the first notice, summons, investigation letter or shareholder claim.