In today’s rapidly evolving corporate landscape, directors and officers (D&Os) face increasing scrutiny and higher risks. From compliance issues to unforeseen litigation, the stakes are higher than ever. That’s where Directors and Officers (D&O) Insurance comes into play—a crucial safety net protecting executives from personal liability due to their professional actions. But within the realm of D&O Insurance, not all policies are created equal. One of the key distinctions in D&O coverage is the “Claims Made” policy. Understanding how this works is essential for executives and businesses to ensure they have the right kind of protection in place.
In this blog, we will take you on a journey through the basics of D&O Insurance, the specifics of “Claims Made” policies, and how they apply to the Indian market. If you are a business owner, director, or officer in India, this is a must-read to understand what you are truly covered for—and how to make the most out of your D&O Insurance Policy.
The Need for D&O Insurance in India
Corporate executives in India are at the helm of an ever-changing business world. With rising competition, expanding regulatory frameworks, and growing legal scrutiny, the risks they face have never been more profound. As the decision-makers within a company, their actions (or lack thereof) can lead to lawsuits, fines, and financial penalties that may not only harm the company but also tarnish their personal financial stability.
D&O Insurance is designed to protect these key individuals—directors and officers—from personal losses in the event they are sued for alleged wrongful acts. The policy typically covers legal defence costs, settlements, and damages, helping to shield executives from personal liability. While D&O Insurance in India has gained significant popularity, understanding the various types of policies available is equally crucial.
A critical distinction in D&O Insurance is the “Claims Made” policy, a term that is often confusing for new policyholders. This blog will help demystify what a “Claims Made” policy means, how it works, and what you should consider when purchasing such coverage.
What is D&O Insurance?
Before delving deeper into Claims Made policies, let’s first clarify what D&O Insurance is. In the simplest terms, D&O Insurance protects directors and officers from personal liability when they are sued for actions taken in their corporate roles. Whether it’s a shareholder dispute, regulatory inquiry, or a claim arising from employee-related matters, D&O Insurance offers financial protection for legal fees, settlements, and damages.
In India, D&O Insurance is gaining traction as the corporate ecosystem becomes more complex, with stricter regulations and a growing number of stakeholders demanding transparency and accountability. This form of coverage is now essential for businesses of all sizes—especially as the risk of litigation and reputational damage increases.
D&O Insurance policies, however, come in various forms. While general liability policies may sometimes be issued on an “occurrence” basis, D&O Insurance is almost universally issued on a “Claims Made” basis—especially in India. Understanding how Claims Made policies function is therefore critical.
What is a ‘Claims Made’ Policy?
A “Claims Made” policy is a type of insurance that provides coverage for claims that are made during the policy period, regardless of when the event that caused the claim occurred—provided it happened after the retroactive date, if one is specified in the policy.
Key Characteristics of a Claims Made Policy:
- Coverage Triggered by Claim Date: Unlike Occurrence policies (triggered by when the event happens), Claims Made policies are triggered by the date on which the claim is formally filed against the insured.
- Retroactive Date: Most Indian D&O policies include a retroactive date—typically either the policy inception date or a prior date agreed upon. Claims for incidents before this date are excluded.
- Continuous Coverage: These policies require uninterrupted renewal to maintain protection. If there is a lapse or the policy is cancelled, claims made later—even for past acts—may be denied unless an Extended Reporting Period (ERP) is in place.
The crucial takeaway is that a Claims Made policy does not cover claims made after the policy has expired, unless a valid ERP is purchased. The timing of the claim is what matters—not when the event occurred.
How Does a ‘Claims Made’ Policy Work in D&O Insurance?
To understand how a Claims Made policy works, let’s break it down further:
The Claims Process
Under a Claims Made policy, the insurer will cover legal costs and damages arising from claims made during the policy period, provided the alleged wrongful act occurred after the retroactive date. For example, if a claim is filed in 2025 for an act that took place in 2022, it will be covered only if the policy includes a retroactive date of 2022 or earlier and the claim is reported within the active policy term or ERP.
The Retroactive Date
This date defines the earliest point in time from which wrongful acts can be covered. If an act occurred before this date, it will not be eligible for coverage—even if the claim is made during the policy term.
Coverage Period and Reporting
A defining feature of a Claims Made policy is its reliance on timely claim reporting. If a policyholder fails to notify the insurer of a claim within the policy period or the ERP, the insurer may reject the claim—even if the wrongful act would otherwise have been covered.
Advantages of a ‘Claims Made’ Policy for D&O Insurance in India
More Predictable Premiums
Claims Made policies often allow insurers to set more stable and predictable premiums. Since coverage is only for known or reported claims during the policy period, it becomes easier for insurers to price the risk, leading to cost consistency for policyholders.
Optional Extended Protection
One of the major benefits is the availability of an Extended Reporting Period (ERP). This option allows policyholders to file claims after the policy expires, provided the wrongful act took place during the coverage period and the ERP is in effect. This is especially helpful for risks that materialise later, such as delayed lawsuits or regulatory actions.
Clear Trigger Mechanism
Since coverage is based on the date the claim is made (rather than when the act occurred), there is clarity on when the policy responds. However, policyholders must strictly adhere to reporting timelines.
Disadvantages and Limitations of a ‘Claims Made’ Policy
Coverage Gaps
If a company or director changes insurers, fails to renew the policy, or allows it to lapse, claims made afterward—even if related to acts during the policy period—may not be covered. To prevent this, continuous coverage or an ERP must be maintained.
Reliance on Continuous Coverage
Unlike Occurrence-based policies, Claims Made coverage must be actively maintained. Directors and companies need to ensure there are no gaps between policy renewals. Even a brief lapse can result in the loss of coverage for past acts.
Potential Pitfalls with Retroactive Dates
A misaligned or restrictive retroactive date can leave key risks uncovered. For instance, if a company is facing an investigation related to an incident that occurred before the retroactive date, even if the claim arises during the policy period, it will be excluded.
Key Considerations for Purchasing a ‘Claims Made’ Policy in India
When purchasing D&O Insurance in India, consider the following:
- Review the Retroactive Date: Ensure it aligns with your company’s operational history. Earlier retroactive dates offer broader protection.
- Understand the ERP: Look for policies that offer an ERP or consider purchasing it separately. It allows claims to be reported post-policy period for incidents that occurred during the coverage term.
- Evaluate Policy Exclusions: Typical exclusions in D&O policies include fraud, criminal acts, and prior known claims. Understand these exclusions carefully to avoid surprises during a claim.
Real-Life Scenarios: Claims Made Policy in Action
Consider a director at an Indian tech company who made a high-stakes decision in 2021, which resulted in financial losses. Shareholders filed a lawsuit in 2023, alleging mismanagement. If the company held a Claims Made D&O Policy from 2021 to 2023, with a retroactive date of 2021, the claim would likely be covered—provided it was reported within the policy term or ERP.
Now, suppose the policy was not renewed after 2023, and the director is sued in 2025. Unless an ERP was purchased, the claim may not be covered, despite the act occurring during a previously active policy.
Final Thoughts:
Understanding how a “Claims Made” policy works is essential for business leaders in India. With the potential for coverage gaps, the significance of retroactive dates, and the critical need for continuous protection, D&O Insurance must be carefully structured.
By securing the right policy, maintaining uninterrupted coverage, and being aware of key clauses like the ERP and retroactive date, executives can ensure that they are well protected. This foresight not only safeguards their careers but also strengthens the organisation’s resilience against legal and regulatory risks.
