Halvorsen & Reith

D&O cover gap review for private company boards

A D&O cover gap review checks whether the directors' and officers' liability policy a private company holds actually responds to the exposure its board carries today, not the exposure it carried when the policy was placed. Boards buy D&O cover once, at incorporation or at the first institutional round, and then renew it on autopilot for years while the company's structure, jurisdictions and risk profile move on without the policy moving with them. The review is the exercise that closes that gap before a claim finds it. It produces a written record a board can point to, not a verbal reassurance from a broker.

A holding company adds a subsidiary in a second jurisdiction, a director resigns and is replaced by someone resident abroad, or the group takes on a lender with its own reporting covenants – and the D&O policy, written for the original single-entity structure, is never revisited. The exclusion that sat unnoticed in year one becomes the clause a claim turns on in year four. Nobody signs off on that outcome; it simply accumulates while renewals are processed as a formality.

This page sets out when the review is needed, what it produces and in what order, and where the advisory perimeter around it sits. It is written for company owners, group general counsel and the directors who carry the personal exposure the policy is meant to cover.

The situation this work addresses

Most private companies renew D&O cover the way they renew office insurance: the broker sends terms, someone on the finance team checks the premium against last year's, and the policy rolls over. That process tests price. It does not test fit. A D&O cover gap review is the exercise that tests fit – it asks whether the policy's definition of "insured person", its territorial scope and its exclusions still match the board that actually exists, the entities it actually sits across, and the transactions the group has actually done since the policy was last read line by line.

The gap is rarely visible from the certificate of insurance. It sits inside definitions: whether a director appointed to a subsidiary board is an "insured person" under the parent's policy or needs separate cover in that jurisdiction; whether a claim brought in a regulatory forum rather than a court is caught at all; whether the policy's territorial limit excludes exactly the jurisdiction where the group has just opened an office. A review that only checks the sum insured misses all three. A jurisdiction-specific version of this review for Abu Dhabi Global Market shows how differently the same policy wording performs once it is tested against a specific regulatory environment rather than read in the abstract.

The review matters most for companies with a cross-border structure: a parent holding company, one or more foreign subsidiaries, and directors who sit on more than one of the boards involved. Cover written for a single-entity domestic company does not automatically extend to a group structure, and the point at which it fails to extend is usually the point nobody thought to check.

What triggers it and why the timing matters

Four events reliably create a gap: a new entity added to the group, a change in the board's composition, a financing round with new investor-appointed directors, and a regulatory filing or investigation that puts the group's governance under external scrutiny for the first time. Each of these changes what the board looks like or what it is exposed to, and none of them automatically triggers a review of whether the existing policy still fits.

Timing is the part boards underestimate. Most D&O policies are written on a claims-made basis, which means cover responds to when a claim is notified, not to when the underlying conduct occurred. A gap discovered after a claim has already been notified under the existing policy cannot be closed by placing better cover the following week – the renewal that follows the claim insures the period after the claim, not the period the claim relates to. Once the renewal date passes without the gap being identified and closed, the exposure for the period that has just ended is fixed, and no later placement of cover reaches back to fill it. That is the single fact that makes this a review to commission before the renewal, not after an incident.

A second timing point sits inside transactions rather than renewals. A financing round, a disposal or a restructuring typically closes on a date fixed by the commercial terms, and director resolutions approving the transaction are usually passed before anyone checks whether the D&O policy's exclusions catch the transaction itself – many policies exclude claims "arising out of" a merger or acquisition unless the insurer is notified in advance. The board resolutions typically required around a D&O cover gap set out which approvals should record that the policy position was checked before signing, not after.

What the work produces, in sequence

The review does not produce a single opinion letter. It produces a sequence of documents, each one feeding the next, so that a board can see not just the conclusion but the reasoning a later claim, a later insurer or a later director will want to see documented.

The sequence matters because each document is drafted from the one before it. A coverage map built before the gap memorandum tells the board where to look; a gap memorandum built before the board memorandum tells the board what it is deciding on. Skipping a step does not save time – it produces a board memorandum that records a decision without the analysis that should sit under it, which is the weakest possible record to have on file if the decision is later tested.

Where this differs by jurisdiction

D&O policies are contracts, and contract law is largely jurisdiction-neutral in how it treats them, but the exposure the policy is meant to cover is not. Company law sets what a director's personal liability actually consists of, and that varies sharply across the jurisdictions a cross-border structure typically spans. In several common-law offshore centres, statutory director duties are narrower and personal exposure is concentrated around insolvency and breach of fiduciary duty; in a number of EU member states, the exposure runs wider, into administrative and regulatory liability that a policy written for a common-law board may not anticipate.

The practical consequence is that the same global D&O programme can cover one director in the group comfortably and leave another exposed, purely because the second director sits on a board in a jurisdiction where personal liability attaches on a different basis. A gap review for a cross-border structure has to work jurisdiction by jurisdiction on this point rather than treating the group as a single risk. A comparison of Hong Kong, Delaware and USA exit-deadlock positions illustrates how far director exposure can diverge across jurisdictions that look, from a distance, like variations on the same common-law model.

Where the group also carries insolvency-adjacent exposure – a subsidiary trading close to balance-sheet insolvency, or a director appointed shortly before a group restructuring – the review has to be read alongside the separate question of duties owed once a company is in the zone approaching insolvency, because that is where personal liability is sharpest and where D&O exclusions are drafted most tightly. The firm's separate analysis of insolvency-zone duties and a jurisdictional comparison of how those duties start both feed directly into how a gap review is scoped for a group carrying that exposure.

What this service does not include

This is an advisory engagement. It does not include acting as, supplying, sourcing or arranging a director, company secretary, nominee shareholder or trustee for the client, and it does not include any activity for which a trust or corporate service provider licence is required. Those are regulated activities under a different licensing regime in most of the jurisdictions this group of boards is likely to touch, and the firm does not hold, and has not sought, that licence.

The boundary is not a matter of preference. A firm that both advises a board on its exposure and supplies the person carrying that exposure has put itself on both sides of the same question, which is precisely the conflict the licensing regime for corporate service providers exists to prevent. Keeping the two functions apart is what makes the advice independent of the outcome it examines.

What the engagement produces instead is set out above: the requirement mapped against the group's actual structure, the coverage gaps identified and ranked, the policy wording marked up against the exposure it is meant to answer, and a board record a director can point to if the question is ever asked directly. Where the review identifies that a director appointment or an indemnification arrangement itself needs restructuring, that recommendation is delivered to the board to instruct through its own registered office and its own chosen providers, not carried out by this firm on the board's behalf.

Frequently asked questions

How often should a D&O cover gap review be carried out?
At every renewal as a minimum, and additionally whenever the group adds an entity, changes the composition of a board, or closes a transaction that could fall within a merger or acquisition exclusion. A review timed to the renewal date catches most gaps before they become uninsured periods rather than after.
Does the review change for a foreign-owned company?
Yes. A company with a foreign parent typically has directors appointed by, or accountable to, an entity outside the jurisdiction where the company itself is registered, and the policy has to be checked against both the local director's exposure and the parent's own expectations of what the cover should respond to. The two are not always aligned in the original placement.
What does the review actually require of the board in practice?
It requires access to the current policy schedule, the group's current constitutional documents, and a current list of who sits on which board across the structure. Most of the work is desk-based; the board's time is spent reviewing the gap memorandum and deciding what to do about each finding, not gathering documents.
Who inside the company is actually responsible for closing the gap once it is found?
The board as a whole, acting through a resolution, not any individual director acting alone. A gap identified but not formally resolved on remains a gap the next claim will test, regardless of who first raised it.
What evidence should the board keep once the review is complete?
The gap memorandum, the board resolution responding to it, and any amended policy schedule or endorsement obtained as a result. That set of documents is what demonstrates, if a claim is later notified, that the board's process was more than a rubber stamp on a renewal notice.

A group carrying director exposure across more than one jurisdiction rarely discovers a coverage gap until a claim tests it, and by then the renewal that could have closed the gap has already passed. Reviewing the policy against the structure that actually exists, rather than the structure it was written for, is the only point in the cycle where the gap can still be closed rather than simply documented.

Assess your director exposure

Write to info@hreithlaw.com with the jurisdiction and the structure.

Lena Marsh, expert author. Lena advises boards of cross-border private groups on director liability, insurance placement gaps and the governance record that supports both. Her work concentrates on structures spanning three or more jurisdictions, where a single global D&O programme is asked to do more than its wording actually covers. She writes on the point at which policy language and company law stop matching each other.

By Lukas Fenn