Does D&O Cover Bankruptcy?

D&O can cover claims against your directors and officers that follow a bankruptcy, such as trustee or creditor suits, but it never pays the company's debts.

D&O can respond to claims against your directors and officers that arise from a bankruptcy, but it doesn't cover the bankruptcy itself or pay the company's unpaid debts. A trustee, receiver or creditor still has to allege a covered wrongful act against an insured.

Bankruptcy changes who sues and who controls the company. Check whether the insured-versus-insured exclusion carves out claims by a trustee, receiver or creditors; if it doesn't, those suits can be excluded. The Travelers specimen form counts a debtor-in-possession as part of the insured organization, which helps, but it doesn't mean every bankruptcy-related claim is covered.

Side A matters most here: it pays individual directors and officers when the company can't indemnify them, which is common once a company is insolvent. Side B only reimburses the company when it can indemnify, and Side C is limited to what its insuring agreement covers. Also check the bankruptcy and insolvency clause, the priority-of-payments clause, whether defense costs erode the limit, and notice deadlines.

Updated . Check your quote and policy wording to see how this answer applies to your coverage. See the editorial policy or contact Spot with a correction and supporting source.

Get Help With Insurance Buying and Renewals.

Get help buying coverage and managing renewals, with less paperwork for your team. Create your account and submit an insurance request online.

Talk to Spot