What is D&O? | Vouch Insurance

When

When should startups get D&O insurance?

D&O COVERAGE

In most cases, you’ll want a D&O policy in place when you raise capital or appoint a board member. Don’t wait for a potential board member or investor to request that you get D&O coverage if you know that you plan on bringing on external directors.

If you’re in a highly litigious or regulated industry (like fintech), it’s best to get coverage as early as possible.

Questions about your startup’s situation? Shoot us a note at hello@vouch.us – we’ll help you understand your D&O exposure.

Why

Why should startups get D&O insurance?

THE LOGIC

D&O insurance provides protection that isn’t offered by any other policy. This protection includes coverage for lawsuits claiming your leadership or board did something or failed to do something that led to a stakeholder’s loss.

COMMON STAKEHOLDERS

“Stakeholders” for the purposes of D&O insurance might include…

Investors
Customers
Suppliers
Competitors
Partners
Government agencies

That’s a big group, which explains why more than a quarter of private companies faced a D&O loss in the last three years.

OTHER REASONS

Boost credibility

D&O isn’t just about managing risk. Having this policy can also boost your credibility. As you vie for top talent with other startups, showing that your company will protect their financial assets may give you an edge.

Venture capitalists

And then there’s the VC question. Venture capitalists tend to be wealthy. They expect portfolio companies to have D&O coverage because it’s the most effective way to protect their personal assets.

IPO

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Plus, if you plan to go public, you’ll want your D&O insurance to cover as much of your activity as possible prior to your IPO. While you may be able to adjust a policy’s retroactive date to offer some after-the-fact coverage, it’s easier to get the policy in place now.

What

What is D&O insurance, and what does it typically cover?

COMMONLY DOES COVER

D&O insurance is designed to protect startups against lawsuits alleging problems with disclosures and reporting, regulatory proceedings, securities claims, and mergers & acquisitions.

A standard D&O policy includes three types (or “sides”) of protection: A, B, and C. Each protects different parts of your business.
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Side A

Assets of individual directors and officers, when the startup can’t indemnify the individual to cover costs related to a claim.

Side B

Reimbursements to the startup for covering a board member’s or officer’s claim-related costs.

CLAIM EXAMPLE

A tech startup fails to disclose some of the customer information it collects and stores, which violates customer protection regulations in the financial industry. A fintech partner the startup works with will face fines because its customer data is stored with the tech startup. The fintech company sues the tech startup’s board and officers for the amount of the fines. The tech startup covers the associated legal costs. Side B of its D&O coverage then reimburses it for these expenses. (If the startup could not cover the legal costs, Side A would provide coverage.)

Side C

Defense costs/settlements for claims alleged against the Company for negligence or breach of duty.

COMMONLY DOESN'T COVER

While a D&O policy can help reduce the financial risks facing your C-suite and board, it does not provide comprehensive startup coverage. Specifically, D&O does not cover:

Damage to your business property or losses caused by your product. These may be covered by a Business Owner’s Policy.
Claims that your professional work caused a financial loss, which are typically covered by Errors & Omissions insurance.
Employee injuries, which are covered by Workers’ Compensation.
Employee lawsuits, which may be covered by Employment Practices Liability, Fiduciary, or Employee Benefits Liability insurance.
Data breach-related costs. These may be covered by Cyber insurance.

VOUCH EXTRAS!

Vouch D&O insurance also offers two coverage types not available in many other D&O policies, as mentioned above:

Cap table disputes
If someone takes legal action against your company’s ownership percentages or equity distributions, Vouch’s policy is designed to cover the costs of defense.

Intellectual Property (IP) protection
‍If someone alleges your product infringes patents, trademarks, or copyrights, and sues your leadership for it, Vouch’s policy is designed to cover the costs of defense.

Ready for some peace of mind? Apply for your Directors & Officers policy.

Why Vouch

Why get D&O from Vouch Insurance?

VOUCH INSURANCE

Vouch’s founders, Sam and Travis, know the hassles of startup insurance firsthand: they’re founders themselves with experience in the litigation-heavy world of fintech.
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This experience drove them to launch Vouch, whose policies are designed specifically for startups. And the process of getting them is founder-friendly: apply in just 10 minutes, and have coverage within 24 hours.
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Combine the hassle-free process with the unique IP and Cap Table coverage included in the Vouch D&O policy, and it’s clear why startups love working with Vouch.