In today’s dynamic business landscape, Directors and Officers (D&O) Insurance has become an essential safeguard for corporate leaders. It protects executives from personal losses when they are sued for alleged wrongful acts during their tenure. But while exploring D&O Insurance options, many come across the term ‘Occurrence’ policy—a common concept in some types of liability insurance. However, its application in D&O Insurance is largely theoretical and not standard practice, especially in India.
In this blog, we will clarify what ‘Occurrence’ policies are, why they are generally not used in D&O Insurance, and what Indian businesses should understand about this concept in contrast to the prevailing ‘Claims Made’ policy model.
What Is an ‘Occurrence’ Policy in General Insurance?
In the broader insurance world, an ‘Occurrence’ policy provides coverage for incidents that take place during the policy period, regardless of when the claim is made—even years after the policy has expired. This structure is commonly used in Commercial General Liability (CGL) and some forms of Public Liability Insurance, where the timing of the event—not the timing of the claim—triggers coverage.
Are ‘Occurrence’ Policies Applicable to D&O Insurance?
While the concept may sound attractive—especially in terms of long-term protection—it does not apply to D&O Insurance in India or most jurisdictions globally. D&O Insurance is structured specifically to deal with complex, delayed, and evolving risks, many of which surface long after the alleged wrongful act. Therefore, insurers across the world—including those in India—only issue D&O Insurance policies on a ‘Claims Made’ basis.
Why Are D&O Policies Not Issued on an Occurrence Basis?
1. Delayed Discovery of Claims
Allegations such as breach of fiduciary duty, corporate mismanagement, or regulatory violations often arise years after the decision or act occurred. An occurrence-based structure would require insurers to hold liability for many years after policy expiry, which is commercially unsustainable.
2. Underwriting Complexity
Occurrence policies make it difficult to predict the frequency and severity of future claims. D&O risks are dynamic and complex, making a ‘Claims Made’ structure much more manageable and actuarially sound.
3. Global and Indian Market Practice
Virtually all D&O insurers in India—licensed under IRDAI—offer D&O coverage only under Claims Made policies. This format is also aligned with international D&O practices, especially in markets like the UK, US, Singapore, and Australia.
Understanding How ‘Claims Made’ Policies Work in D&O Insurance
In a ‘Claims Made’ D&O policy, both the incident and the claim must be reported within the policy period (or an extended reporting period, if applicable). The insurer only pays for claims:
- That are made against the insured during the active policy period;
- Where the wrongful act occurred after the retroactive date.
This format allows insurers to price the risk accurately and enables policyholders to control risk exposure more effectively.
Key Features to Focus On in Indian D&O Claims Made Policies
- Retroactive Date
The retroactive date determines how far back in time coverage applies for wrongful acts. A policy with a full prior acts coverage will respond to claims based on acts done years ago—so long as the claim is made during the active period.
- Continuity of Coverage
Lapses in the policy can reset the retroactive date, which could cause earlier acts to become uninsured. Consistent, uninterrupted coverage is essential.
- Extended Reporting Period (ERP)
Also known as “run-off” cover, this extension allows claims to be reported for a specific period even after the policy has ended, typically used during mergers, acquisitions, or when directors resign.
Common Exclusions in D&O Insurance in India
Even within Claims Made policies, it’s vital to understand that certain exclusions are standard:
- Fraud and Criminal Acts
Claims arising from wilful misconduct, fraud, or illegal activity are generally excluded unless proven innocent.
- Personal Profit or Gain
If a director or officer is found to have gained personal benefits illegally or unethically, the insurer will not cover the associated costs.
- Prior Known Claims
Matters that were known or should have been known prior to the start of the policy are excluded.
Why Understanding This Matters for Indian Businesses
- Regulatory Landscape
India’s corporate regulatory environment (SEBI, MCA, SFIO, RBI, etc.) is increasingly strict. Claims against directors can arise long after their service ends. This reinforces the need for policies with appropriate retroactive dates and ERPs.
- Corporate Governance
Investors and stakeholders demand transparency and strong governance. A well-structured D&O Policy demonstrates commitment to accountability and risk management.
- Business Continuity
For family-owned businesses, startups, and SMEs, D&O coverage offers vital protection that helps secure leadership talent and strategic partnerships.
How to Choose the Right D&O Policy in India
- Evaluate Policy Terms
Understand the retroactive date, claim reporting terms, and exclusions.
- Choose Adequate Limits
Ensure the sum insured reflects the size and risk exposure of the business and its board.
- Consider Add-ons
Some policies offer enhancements such as entity cover, cyber liability for directors, and regulatory investigation costs.
- Work with Expert Brokers
A broker experienced in D&O Insurance can help tailor a policy that meets your business’s needs and ensure seamless claim management.
The Bottomline:
While ‘Occurrence’ policies provide long-term comfort in other types of liability insurance, they do not exist in D&O Insurance, especially in India. All D&O Insurance offerings in the Indian market follow a ‘Claims Made’ structure, which aligns with global practices and the practical realities of managing delayed and complex director-level risks.
Rather than chasing an unworkable structure, Indian businesses should focus on maintaining continuous D&O coverage, negotiating favourable retroactive dates, and securing extended reporting periods when needed. With the right D&O Insurance strategy, directors and officers can lead with confidence—protected against future claims, reputational damage, and costly litigation.
