Does D&O Cover Insolvency?

An insolvent company may face claims from investors, creditors, or a bankruptcy representative alleging wrongful management. D&O protection, if triggered, is liability insurance for covered claims and insured parties; it is not balance-sheet insurance for unpaid obligations. Policy forms may have insolvency-related exclusions or provisions concerning claims brought by a receiver, trustee, or liquidator. Compare those clauses, the insured-versus-insured exclusion and its exceptions, entity coverage, priority of payments, and limit erosion. The Travelers specimen illustrates some insolvency and bankruptcy language but cannot establish how another carrier will handle a claim.

Financial distress may prevent company indemnification, making the Side A grant especially relevant to covered individual loss; Side B instead reimburses the organization for indemnification it pays. Neither grant is a promise to repay creditors or restore the company’s balance sheet. A trustee or receiver claim may encounter insured-versus-insured or insolvency wording, and Side C may have a narrow trigger. Check priority of payments, separate Side A limits, entity protection, exclusions and exceptions, and whether defense expenses erode the aggregate. Distinguish the alleged management act from the company’s inability to pay its obligations.