Authors: Jennifer Sharkey Walker Newell
Public company Directors and Officers (D&O) insurance policies are designed to protect against three broad types of loss:
- To reimburse individual officers and directors for non-indemnifiable covered claims (Side A)
- To reimburse the company when it pays the expenses of individual directors or officers for indemnifiable covered claims (Side B)
- To reimburse the company for covered securities claims brought against the company (Side C)
By design, a public company D&O policy isn't meant to reimburse the company for claims unrelated to securities.
Insurance coverage for life sciences exposures
Publicly traded life sciences companies face a high risk of shareholder litigation. For this reason, like their peers in other industries, public companies in the life sciences industry typically maintain D&O insurance, with Side C meant to protect the company against securities claims.
At the same time, life sciences is one of the most heavily regulated industries, monitored by the Food and Drug Administration (FDA), European Medicines Agency (EMA) and other global regulators. Given the significant regulatory and litigation exposures, life sciences companies often maintain the following insurance coverages:
- General liability
- Products liability
- Personal injury
- Clinical trial
- Medical malpractice and/or other forms of professional errors and omissions policies.
If a medical device has a latent defect that causes patient injury or if an adverse event occurs during pharmaceutical clinical trials, a company may face expensive litigation focused on the defect itself.
Happily, as discussed, a variety of professional and general liability insurance products are available in the marketplace to help manage the risk of these claims. (For a discussion of recent trends in this marketplace, check out Gallagher's Winter 2026 Life Sciences Insurance Market Summary.)
But will a D&O policy respond if a medical device malfunction or a failed Phase 3 trial results in a corporate crisis that causes the company's stock price to crater, giving rise to a follow-on securities class action against the company? And what if the CEO and CFO are personally named in shareholder derivative litigation related to the same events, placing individual officers directly in the line of liability?
The D&O bodily injury exclusion
At this point, readers outside of the insurance community may say: "We've already established that the company only has D&O coverage for securities claims. If those securities claims are based on financial improprieties, they should be covered. If those securities claims are based on a stock drop caused by a products liability issue, they should also be covered, right?
"And if other claims are directly for bodily injury and they're not based on securities theories, the D&O policy — by basic design — doesn't include coverage under Side C for non-securities claims, so insurers should have nothing to worry about.
"We're good — right?"
While these arguments have appeal, insurers have long been sensitive to drawing a clear distinction between D&O policies on one hand and general, products and professional liability policies on the other. There's also the question of how the D&O policy should respond to claims against individual corporate leaders if those claims are related to, for example, an alleged product defect that causes injury to consumers.
For these reasons, the base form of modern public company D&O policies typically includes a "bodily injury" exclusion. While language varies, the basic intent of this exclusion from the insurer's perspective is that D&O policies don't cover the company for claims seeking direct compensation for physical harm (illness, injury or death) suffered by humans who used the company's products or services.
Coverage carve-backs for the bodily injury exclusion
Because the bodily injury exclusion is a baseline feature of most modern public company D&O policies, insureds want to make sure they aren't boxed out of coverage for D&O claims arising from an underlying issue involving bodily injuries.
These tensions are typically resolved for life sciences companies by adding carve-back language to clarify that certain claims will be covered under the D&O policy, notwithstanding the bodily injury exclusion.
At a high level, here are some of the key coverage considerations related to bodily injury exclusions and carve-backs.
Breadth of exclusion
Unduly broad exclusion language — which could, in theory, allow insurers to argue that a securities claim is related in some way to underlying bodily injuries — is disfavored and should be avoided where possible.
"Securities claim" carve-backs
If a securities class action is based on a stock drop caused by the disclosure that a company's products have harmed consumers, the insureds may have a strong argument that the securities case is covered, notwithstanding a bodily injury exclusion.
Safer footing is found, however, through an explicit carve-back specifying that the bodily injury exclusion doesn't apply to "securities claims." With appropriate wording, this policy language can help ensure that Side B and Side C coverage perform if shareholders sue the company for a stock drop caused by disclosures about, for example, product safety issues that allegedly caused harm to consumers.
Side A carve-backs
In a corporate crisis, it's common for plaintiffs' firms to file shareholder derivative litigation against directors and officers. These cases allege that leadership failed to oversee the company, leading to problems, and that they should personally repay the company (and shareholders) for losses related to these problems.
For directors and officers of Delaware corporations, settlements in shareholder derivative cases are non-indemnifiable, which is one of the reasons why Side A D&O insurance is a critical protection for individuals' personal assets.
Life sciences officers and directors face a real risk of shareholder derivative litigation related to underlying product issues and alleged harm to consumers. Significant products or professional liability issues may also harm the business and give rise to solvency issues, potentially impacting the company's ability to indemnify.
If these types of matters are excluded from D&O coverage because they're related to bodily injury and the company is legally barred from indemnification or can't indemnify, individual leaders could be faced with personal exposure.
Carve-backs can address these risks by clarifying that the bodily injury exclusion doesn't eliminate coverage for non-indemnifiable loss.
Side A difference in conditions coverage
Side A "difference in conditions" (DIC) policies are an important adjunct to public company D&O programs. Unlike the ABC policy limits — which the company and individual insureds share — Side A DIC layers only benefit the directors and officers. Side A policies also often include more expansive coverage language and will drop down to perform if the underlying ABC policy has a gap in coverage.
Important for this discussion, well-negotiated public company Side A DIC policies don't typically include a bodily injury exclusion. Most public companies buy Side A DIC insurance, which gives directors and officers added protection for claims that may involve some underlying bodily injury.
Conclusion
The bodily injury exclusion is a common feature of public company D&O insurance policies. Carve-backs can be helpful to clarify that securities claims and non-indemnifiable claims aren't subject to the bodily injury exclusion.
Published May 2026
