Author: Priya Cherian Huskins
When it comes to Directors and Officers (D&O) insurance coverage, timing matters. D&O insurance policies are claims-made policies.
This technical piece of jargon can be highly consequential because coverage generally depends on when a claim is first made, rather than when the act occurred.
In this article, we'll explore occurrence versus claims-made policies and why the distinction matters for coverage.
Occurrence vs. claims-made policies
Insurance policies come in two flavors: occurrence-based or claims-made.
An occurrence-based policy covers claims arising from acts or incidents that occur during the policy period.
What if the claim related to the occurrence happens years later? It doesn't matter. The policy that was in place at the time of the occurrence is the policy that will respond.
For this reason, you should never throw away documentation for occurrence-based policies.
The classic example is asbestos litigation. Manufacturers sold products with asbestos in the 1960s, '70s and '80s. Workers handling those products developed mesothelioma 30-40 years later.
Companies had to dive far back into their files to find the relevant occurrence-based insurance policies.
While I'm not suggesting that anyone whimsically throw away policy documents, the stakes are a lot lower for claims-made insurance policies.
Unlike the occurrence policy, what matters for a claims-made policy is whether the claim is made during the policy period. The policy that responds is the policy that was in force at the time of the claim.
(Note: Many policies require that a claim be both made and reported to the insurance carrier within the specified period. It's important to look at the exact language of the relevant policy.)
Unfortunately, there's an additional question that must be considered when it comes to claims-made policies: What was the retroactive date?
A retroactive date (also known as a "past acts" date) in a claims-made policy is the date after which an occurrence must have taken place for the claims-made policy to apply.
In the best case, your claims-made policy doesn't have a retroactive date at all. This is actually pretty common in D&O insurance policies.
Why does the claims-made nature of D&O policies matter to directors and officers?
The D&O insurance policy that will respond to a claim is the one that was in effect when the claim was made. This structure works out well since companies typically renew their D&O insurance policy every year, so directors and officers don't have a coverage gap.
Renewing policies without the addition of a retroactive date or other similar limitation is commonly referred to as "preserving continuity."
But what happens if a company stops purchasing D&O insurance, something that would be normal if the company either went bankrupt or was sold?
In the base case, a company that stops purchasing D&O insurance is a company that won't have coverage if a claim is made after the last active policy expires.
You never want to find yourself in the base case.
Happily, the insurance industry has come up with a solution: the extended reporting period.
An extended reporting period is just what it sounds like: extra time to report a claim. Most D&O insurance policies include a small amount (say 30, 45 or 90 days) for no additional charge. (Note that the only claims that can be reported during the extended reporting period are claims that relate to activities that took place before the policy expired.)
But what directors and officers really want is for the reporting period to stay open for a long time. This allows the policy to absorb claims that might come in after it has expired, since no renewal policy exists to take on new claims.
Brokers make this happen by negotiating a longer extended reporting period, often referred to as a "tail policy." In the United States, a standard tail policy is six years, meaning the policy will stand open an additional six years to absorb new claims related to events that took place before the policy expired.
A tail policy isn't a new policy; it's just another way to refer to the extended reporting period, most typically when we're paying additional premium for it. For more on tail policies, check out our D&O Notebook article titled "Protecting Directors and Officers Against Post-Acquisition Claims: D&O Tail Policies."
As you would expect, a tail policy for a bankrupt company works similarly, albeit with nuances related to the bankruptcy itself, including when the tail is placed and who exactly will pay for it. Talk to your trusted D&O insurance advisor for more on this topic.
Initial public offerings (IPOs) are another time when tail policies are discussed because private company D&O insurance is very different from public company D&O insurance. For reasons I've discussed at length in my article on private company D&O tail coverage, in most cases you don't want to put a tail on the private company policy for a company that is going public.
When the rubber hits the road: Circumstances
Because D&O insurance is claims-made insurance, an especially difficult situation arises when the following takes place:
- Something happens that makes litigation likely
- The D&O insurance policy is about to renew
- No claim has yet been made.
For public companies, the classic scenario is a precipitous stock price drop related to some sort of bad news. While plaintiffs may be circling, they may not actually bring a before the D&O policy expires.
One solution is for the company to renew with incumbent carriers as long as they don't put any exclusion on the policy related to the precipitous stock drop. This option works because of the claims-made nature of the policy and is a major reason high-quality incumbent carriers are favored at the time of a D&O insurance renewal. You want your D&O insurance to be with carriers that don't run at the first sign of trouble.
Another option for a company is to file a "notice of circumstance." This provision, found in most D&O insurance policies, will cause a future claim to be treated as if it were made before the policy expires (effectively putting that claim on the expiring policy), but only if the is sufficiently specific. This specificity requirement can be very tricky. For example, a mere stock drop may not be enough to meet the specificity requirement on its own.
Of course, incumbent relationships don't last forever, especially if a new market offers substantially better terms. Changing carriers is possible and perfectly fine to do, but judiciously. Responsible brokers and clients must think carefully before changing carriers because of the claims-made nature of D&O insurance policies. An expert broker will provide guidance on issues like maintaining coverage continuity and avoiding problematic exclusions.
Published October 2026
