This memo provides a status update to final executive incentive-based compensation clawbacks under Dodd-Frank, as well as the implications to Directors and Officers (D&O) insurance.

Author: Natalie Douglass, Esq.


Background and timeline

On June 9, 2023, the Securities and Exchange Commission (SEC) approved amendments to listing standards filed by the New York Stock Exchange (NYSE) and Nasdaq Stock Market in February 2023 in response to the SEC's final clawback rules. Issuers now have until December 1, 2023 to comply with the listing standards.

Under the final rules, issuers are required "to adopt and comply with a compensation recovery policy, often known as a clawback policy, and require listed issuers to provide disclosure about such policies and how they are being implemented."1

Please consult with outside counsel to determine what compliance measures are necessary.

Implications for Directors and Officers (D&O) Liability insurance

The new rules specifically address indemnification and insurance for the clawback of incentive-based compensation. Key takeaways under the new rules are:

  • Issuers may not insure or indemnify an executive officer "against the loss of erroneously awarded compensation."2
  • Individual executive officers may purchase an insurance policy to cover potential recovery obligations, but the issuer is prohibited from paying the premium or reimbursing the executive officer for such premium associated with the insurance for clawbacks.
  • Such insurance should be limited to covering clawbacks only when the material accounting error isn't attributable to the executive.

Generally, D&O policies won't cover clawbacks. First, as a matter of public policy, disgorgement or the return of funds is not insurable loss. Further, most D&O policies usually go a step further to say that executive compensation clawbacks aren't covered, although they may provide coverage for defense costs or facilitation costs, subject to the specific terms and conditions of the policy. Note also, certain exclusions may also apply, including the Entity v. Insured exclusion (or Insured v. Insured exclusion) and the Conduct exclusion for gaining of profit.

Given the scope set by the SEC for potential insurance coverage, it's possible that insurers will develop insurance products to cover executive compensation clawbacks. Certain Bermuda carriers have written policies previously, although it's unclear what underwriting appetite might exist under these new rules going forward.

Recommended reading

These articles about the clawback rules and the implications for insurance coverage explore the topic in more depth.

Author Information


1"Recovery of Erroneously Awarded Compensation," US Securities and Exchange Commission, accessed 16 Jun 2023. PDF file.

2"Listing Standards for Recovery of Erroneously Awarded Compensation," US Securities and Exchange Commission, accessed 16 Jun 2023. PDF file.


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