D&O Insurance: Now Mandatory, Still Widely Misunderstood

Still Widely Misunderstood explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

An independent director's real financial exposure isn't the penalty. It's the defence cost — years of lawyers, in multiple forums, on a matter you may have voted against.

That's what directors' and officers' liability insurance is actually for, and since 1 January 2022 SEBI has made it compulsory for a large slice of listed India.

Regulation 25(10): the top 1,000 listed entities by market capitalisation must undertake D&O insurance for all their independent directors, of such quantum and for such risks as the board determines. The quantum is not prescribed — which is where the gap usually is. Defence costs are the point. Fraud and wilful misconduct are always excluded, and run-off cover is what protects you after you leave. Under Section 197(13), the premium isn't treated as your remuneration unless you're proved guilty.

What the regulation actually requires

The top 1,000 listed entities by market capitalisation must undertake directors' and officers' liability insurance for all their independent directors, of such quantum and for such risks as may be determined by its board of directors.

Two observations.

It covers independent directors specifically. Most companies buy a policy covering all directors and officers anyway, which is sensible — but the mandate is about independent directors, and if the board is choosing between spending more on cover for the promoter-directors or the independent ones, the regulation has already decided.

The quantum is left to the board. SEBI prescribes no minimum. A ₹1 crore policy across an entire board technically complies and is close to useless in a serious securities matter. This is where the compliance and the substance separate, and it's the question to ask.

What a D&O policy covers

D&O policies are usually structured in three parts:

The critical component across all three is defence costs — legal fees, investigation costs, and the expense of responding to regulatory proceedings. In India, most independent director exposure never reaches a final adverse order. It consists of years of showing up: a SEBI investigation, an SFIO summons, a ROC prosecution, a Section 138 complaint in a magistrate's court in another state. Each of those costs money from the first day, long before anybody decides whether you did anything wrong.

Confirm that defence costs are paid as incurred, not reimbursed only after the matter concludes. A policy that pays at the end doesn't help with the cash flow of a five-year defence.

What it never covers

• Fraud and dishonesty. Universally excluded — usually once finally established by a judgment or admission, which means defence costs are typically advanced until then and clawed back if fraud is proved.
• Wilful misconduct and deliberate breaches.
• Personal profit or advantage to which the director wasn't legally entitled.
• Prior known circumstances — anything you were aware of before the policy incepted.
• Criminal fines and penalties, generally. Insuring a criminal fine runs into public policy objections; civil compensation and defence costs are a different matter.
• Bodily injury and property damage, which belong on other policies.

The pattern is consistent: D&O insures you against being wrong or unlucky, not against being dishonest. Which is the correct design — a policy that covered fraud would remove the incentive the whole governance structure depends on.

Run-off cover: the thing directors forget

D&O policies are written on a claims-made basis. They respond to claims made during the policy period, not to acts committed during it.

So if you resign in 2026 and a claim arrives in 2029 about a 2024 board decision, the policy in force in 2024 is irrelevant. What matters is whether there's a live policy — or a run-off extension — when the claim is made.

Two things to secure before you leave a board:

• Run-off cover for a defined period after your departure. Six years is a common ask; the limitation periods in company and securities law are long.
• A written commitment in the appointment letter that the company will maintain cover, and will notify you if it lapses or changes materially.

An independent director who resigns over a governance concern is in exactly the position where the company has the least incentive to keep insuring them. Deal with it at appointment, when your leverage is highest.

Section 197(13): the premium isn't your income

A useful provision that gets missed.

Where a company takes insurance to indemnify its directors, KMP or officers against liability for negligence, default, misfeasance, breach of duty or breach of trust, the premium is not treated as part of their remuneration.

With one exception: if the person is proved guilty, the premium paid on their behalf is treated as part of their remuneration.

The practical effect is that D&O premiums don't eat into your Section 197 remuneration limits or get taxed as a perquisite in the ordinary course. It's one of the few provisions in this area that is straightforwardly helpful.

Questions to ask before you accept a board seat

1. Is there a D&O policy? If the entity isn't in the top 1,000, this is a negotiation, not a given.
2. What's the aggregate limit, and is it shared across every director and officer? A shared limit is a race to claim.
3. Are defence costs advanced as incurred?
4. Is there a dedicated Side A limit for when the company can't indemnify?
5. What's the run-off period after resignation or retirement?
6. Does it cover regulatory investigations — SEBI, SFIO, ROC — before any formal proceeding starts?
7. Are non-executive directors carved out of any exclusion, or treated the same as management?
8. Who gets notified of a claim, and will you be told if the policy lapses?
9. Is there a separate indemnity from the company in the appointment letter?

A board that can answer these quickly has thought about your risk. A board that hasn't is telling you something too.

Key takeaways

• Mandatory for the top 1,000 listed entities since 1 January 2022.
• The board sets the quantum — SEBI prescribes no minimum, so ask.
• Defence costs are the real benefit, not the indemnity.
• Fraud and wilful misconduct are always excluded, usually once finally established.
• Claims-made basis — so run-off cover is what protects you after you leave.
• Section 197(13): the premium isn't your remuneration unless you're proved guilty.
• Negotiate all of this at appointment, in the letter.

Read next

• Independent Director Liability: When Are They Actually on the Hook?
• Regulation 25 of SEBI LODR: Every Obligation of an Independent Director
• Director Liability Beyond Company Law: Income Tax, GST, NI Act, FEMA
• Independent Director Appointment Letter: Format and Must-Have Clauses

Law stated as on 5 September 2026. Policy wordings vary widely between insurers — this is a general description, not a substitute for reading the actual policy schedule and exclusions.