What is it?
When a company merges, is acquired, or ceases trading, directors and officers don’t simply walk away from potential liability. Claims can emerge years after a transaction completes or a business winds down – arising from decisions made, disclosures given, or governance failures that occurred during their tenure.
D&O Run-Off insurance exists specifically to protect former directors and officers during this extended tail period. Despite its importance, run-off cover is frequently overlooked in transaction planning or treated as an afterthought in wind-down scenarios.
When is it needed?
Mergers and Acquisitions
When a company is acquired, the existing D&O policy typically terminates at completion. Even if some directors remain within the merged entity, the buyer’s D&O policy will almost certainly exclude cover for pre-acquisition acts – the buyer has no interest in covering historic decisions and conduct over which they had no control or influence.
This creates a critical gap: the selling directors remain personally liable for all decisions made during their tenure, yet their operational policy has ceased. Run-off cover bridges this gap, protecting former directors from claims arising from pre-completion conduct. Importantly, significant D&O risks on acquisition can come from the purchaser itself – particularly where claims involve allegations of fraud, misrepresentation, or regulatory breaches that fall outside warranty and indemnity insurance coverage.
Closures and liquidations
When a business winds down – whether voluntarily or through insolvency – D&O run-off cover becomes essential. Directors remain personally exposed to claims relating to their tenure long after the company has been dissolved, yet once the company is liquidated, corporate indemnification is no longer available.
Claims in wind-down scenarios commonly include allegations of wrongful or fraudulent trading, preference payments, breach of duties to creditors, or regulatory investigations into conduct during the company’s final years of operation. These claims can emerge years after dissolution as liquidators, creditors, or regulators examine the company’s affairs.
Ownership structure changes
Significant changes in ownership structure or board composition can trigger similar run-off requirements, even where the company continues trading. If an event results in over 50% change in voting control or board membership, departing directors lose the protection of the ongoing D&O policy for their historic conduct.
This scenario often arises in private equity exits, founder departures, or major recapitalisations. The outgoing directors remain exposed to claims for decisions made during their tenure, but the new management may be unwilling to extend ongoing policy coverage to their predecessors.
How does it work?
D&O Run-Off insurance is a claims-made policy that extends cover for claims made after a company’s standard D&O policy ends – but relating to wrongful acts which occurred during the period when the operational policy was in force.
The period of a Run-Off policy typically extends for 6 years, though this can be tailored based on the nature of the business and jurisdictional limitation periods. Run-off premiums are typically calculated as a multiple of the expiring annual premium, depending on the policy period selected and the company’s risk profile.
Why do we need it?
Run-off cover isn’t just a transaction necessity – it’s personal protection for individuals moving on from businesses they’ve built or led. As consolidation continues across the asset management sector – driven by the pursuit of scale, technological capability, and regulatory pressures – more directors are exiting businesses through M&A or wind-downs.
The regulatory landscape, increasing shareholder activism, and extended limitation periods mean former directors face exposure long after they’ve moved to their next role.
If you’re facing an M&A transaction, fund closure, or business reorganisation and want to discuss appropriate run-off protection for your directors and officers, please contact our Financial Institutions team.