D&O Insurance and Deeds of Indemnity: Questions Before You Join a Board
Most new directors ask about the strategy, the culture and the time commitment.
Far fewer ask about insurance. It feels awkward, a little negative, perhaps even rude. Nobody wants to start a board relationship by asking what happens if things go wrong.
Yet this is one of the most sensible questions a new director can ask. Directors carry personal duties. If a claim is made against you as a director, the cost of defending it can be large, even when you have done nothing wrong. Directors and officers insurance, often called D&O, and a deed of indemnity are the main ways boards protect their members.
Experienced chairs expect the question. Asking it shows you understand the role.
This article covers what D&O insurance does in general terms, deeds of access, insurance and indemnity, gaps to ask about, not-for-profit and smaller boards, run-off cover when you leave and when to get advice. It is general information only. Laws and policies differ between Australia and New Zealand and between insurers, so get legal and insurance advice for your situation.
What D&O insurance covers in general terms
D&O insurance is a policy the organisation usually buys to protect its directors and officers against certain claims made against them personally because of their role.
In general terms, a D&O policy may help with:
Legal defence costs. The cost of responding to a claim or investigation, which can be significant even if the claim fails.
Damages or settlements. Amounts a director is ordered or agrees to pay, where the policy and the law allow cover.
Investigation costs. Some policies cover costs linked to regulator inquiries or formal investigations.
Policies are usually structured in parts. One part protects directors personally when the organisation cannot or will not indemnify them. Another part reimburses the organisation when it does indemnify them. Some policies also cover the organisation itself for certain claims.
What a D&O policy does not do is protect directors from everything. Most policies exclude deliberate wrongdoing, dishonesty and fraud once proven. Some types of fines and penalties cannot be insured by law. And every policy has limits, excesses and conditions.
Deeds of access, insurance and indemnity
A deed of access, insurance and indemnity is a contract between you and the organisation. It is separate from the insurance policy, and it matters just as much.
It usually covers three things:
Access. Your right to see board papers and records from your time as a director, including after you leave. If a claim comes years later, you need those papers to defend yourself.
Insurance. A promise that the organisation will keep D&O insurance in place for you while you are a director and for a period after you leave.
Indemnity. A promise that the organisation will cover certain costs and liabilities you incur as a director, within what the law allows.
Without a deed, you may rely on the constitution or on goodwill. Goodwill can disappear quickly if the organisation changes owners, falls into financial trouble or the board changes.
Ask for a deed before you accept the seat, or as soon as you are appointed. Many larger organisations offer one as standard. Smaller ones may need to be asked.
Gaps to ask about
You do not need to become an insurance expert. You do need to ask enough questions to understand the main risks.
What is the limit of cover, and is it shared? The limit is often shared across all directors and officers, and sometimes the organisation too. One large claim could use most of it.
What are the main exclusions? Ask for a plain summary of what is not covered.
Does the policy cover regulator investigations? Some cover only formal proceedings, not earlier inquiries.
Is there cover for claims relating to insolvency? This can be an area with specific terms.
What about health and safety claims? Rules about insuring certain safety penalties differ between Australia and NZ. Ask what the policy covers and what the law allows.
Does the policy cover past acts? Check whether there is a retroactive date and what it means for decisions made before you joined.
Who are the insurers and when does the policy renew? A sudden change in insurer or terms can affect your cover.
Has the organisation made any claims or notified any circumstances? This tells you whether there are live issues.
You can ask the company secretary or the CFO for a summary. If you come from a finance background, you will likely find the policy schedule easy enough to read. The wording, however, is where the detail sits, and that is where an adviser helps.
Not-for-profit and smaller boards
Not-for-profit, charity, sporting and community boards often have smaller budgets and less formal governance. Some have D&O insurance. Some have a combined management liability policy. Some have nothing.
Being unpaid does not remove your duties, and it does not remove the risk of a claim. Ask the same questions you would ask a commercial board.
If the organisation does not hold D&O insurance, ask why and whether it would consider it. Some peak bodies and sector groups offer access to cover for members, and brokers can quote for smaller organisations. If the board is unwilling to discuss it, treat that as a signal about how it manages risk more broadly.
See not-for-profit boards as a first seat for other questions to ask.
Run-off cover when you leave
Claims can come years after a decision was made. That is why cover after you leave matters.
Run-off cover generally means the insurance continues to respond to claims about your time on the board, even after you have left. A good deed will require the organisation to keep cover in place for a set period after you leave. The period varies, so check what yours says.
Run-off becomes especially important if the organisation is sold, merged, restructured or wound up. In those situations, the old policy may end and the new owner may have no interest in protecting former directors. Ask what will happen to cover before any of those events, not after.
For more on exiting a board, see leaving a board well.
How search consultants see it
When I worked in executive search, I saw first-time directors hesitate to ask about insurance in case it made them look cautious or difficult. Experienced directors never hesitated. They asked about D&O and the deed as calmly as they asked about meeting dates.
Chairs I spoke with did not see it as negative. They saw it as a sign that the candidate understood what being a director means. A candidate who asked nothing about protection sometimes raised more questions than one who asked a lot.
When to get advice
Get legal and insurance advice before joining a board where:
The organisation is in a high-risk sector, such as financial services, health, construction or resources
There are known financial pressures, disputes or regulator issues
You are asked to join without a deed of indemnity
The policy has unusual exclusions or a low limit
You sit on boards in both Australia and New Zealand
A lawyer can review the deed. An insurance broker or adviser can explain the policy. The cost is modest compared with the protection you gain.
You can also ask for these questions to form part of your due diligence. See board role due diligence.
A quick self-check
Do you know whether each board you sit on holds D&O insurance?
Do you have a signed deed of access, insurance and indemnity for each seat?
Do you know how long cover continues after you leave?
Have you had the deed reviewed by a lawyer?
Your next step
Before your next board conversation, add three questions to your list: is there D&O insurance, will I receive a deed of access, insurance and indemnity, and how long does cover continue after I leave. Then arrange legal and insurance advice for anything you do not understand.
If you want help with your board profile, my board resume writing helps senior leaders present governance experience and director readiness with confidence.
If you are weighing up a board seat and want a sounding board, book a complimentary Clarity Session.
