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Portfolio Company
Directors & Officers Liability

When Should a Private Portfolio Company first get D&O Insurance?

Young private companies historically went without D&O insurance until they became much larger businesses or went public. That practice has changed. Now, even many early stage companies with relatively small operations have some level of D&O coverage in place.

Why the Change?

First, the coverage being offered by the major D&O insurance carriers is better and cheaper (relatively speaking) than it used to be because the marketplace for D&O insurance has become more competitive and better developed. Second, the directors of even small companies are seeking increased protection from the threat of personal liability because of the perceived increase in risk associated with being on the board of directors of any company. Third, and in a similar vein, more private equity firms have adopted the risk management strategy of requiring that any new company in which they invest have some level of D&O coverage in place.

What Limits Should I Buy?

There is no formula or litmus test applied in the D&O insurance industry to answer this question. Many early stage private companies carry between $1 million to $5 million in limits, with more mature companies that have broader operations typically carrying $10 million or more in limits. This range is substantial, and ultimately the answer for any particular company will depend in part on how much risk a board of directors is – or is not – willing to assume.

 

 

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