Why is D&O insurance important?
The legal liability of a company director arising from business decisions can extend to personal property, bank accounts and other personal assets. In Türkiye, claims against directors are increasing under the Turkish Commercial Code (TTK), Capital Markets Board (CMB/SPK) regulations and Competition Authority rules.
Directors & Officers (D&O) insurance covers the defence costs and damages a director would otherwise have to pay out of pocket as a result of liability claims arising from decisions made in the course of their duties. It is the director's personal assets that are protected — not the insurer's.
The Three Layers of a D&O Policy: Side A, Side B and Side C
D&O insurance is not a single coverage; it contains three distinct layers that determine who is protected and in which circumstances.
Personal Protection of the Director (Side A)
Protects the director's personal assets directly when the company cannot indemnify or is legally prevented from doing so.
Corporate Reimbursement Coverage (Side B)
Reimburses the company for amounts it has paid out of its own pocket on behalf of a director, protecting the company's balance sheet.
Entity Coverage for Securities Claims (Side C)
Protects the company itself against certain legal claims such as securities claims. Critical for publicly listed companies.
Most D&O policies include all three layers; however, the limit structure, the balance between layers and whether Side A has a separate dedicated limit vary significantly from policy to policy. Neolife designs the coverage structure to match each client's profile.
Who is insured — and who is excluded?
Typically covered
- Board members (directors)
- Independent board members
- General Manager and CEO
- Senior executives: CFO, COO, CTO
- Supervisory board members
- Committee members (within their mandate)
- Former directors (if run-off is in place)
Typically excluded
- Deliberate fraud (after court ruling)
- Unauthorised personal profit
- Bodily injury / property damage claims
- Fines and criminal sanctions
- Prior known circumstances
- Pollution claims (in some policies)
Exclusions vary in policy wording. A broker negotiates for a narrow exclusion list and ensures that a severability clause is included in the policy — critical to prevent one director's misconduct from affecting the coverage of other innocent directors.
Claims-Made Coverage, Retroactive Date and Run-Off
D&O insurance operates on a claims-made basis; the date the claim is made — not the date of the underlying act — is the decisive factor. This structure can create gaps that are independent of the policy's start and end dates.
Three different scenarios
Decision made in 2022, claim received in 2024 (while policy is active) and retroactive date is 2020 → Covered.
Decision made in 2024, policy not renewed at end of 2024, claim received in 2025 → Not covered. Without run-off, the claim will not be met.
Decision made in 2018, retroactive date is 2020 → 2018 decision is excluded, even if the claim arrives in 2024.
Retroactive Date
This is the starting point for events the policy covers. Negotiating for the earliest possible retroactive date is one of the most critical steps in D&O brokerage. For companies purchasing D&O for the first time, insurers sometimes equate the retroactive date with the policy inception date — this is not standard and should be negotiated.
Run-Off Coverage (Extended Reporting Period)
When a policy is cancelled or expires, run-off covers claims made in the future that are based on acts during the policy period. The most critical situations requiring run-off coverage:
- Company sale or merger (M&A): Former directors of the target company may face claims after the transaction closes.
- Director resignation or departure: A departing director is exposed without an active policy.
- Liquidation or insolvency: Claims from creditors and shareholders may arise after the company closes.
Run-off periods are typically available from 1 to 6 years; the longer the period, the higher the premium.
D&O differences between public and private companies
| Parameter | Publicly Listed Company | Private Company |
|---|---|---|
| Main claim sources | Shareholders, securities litigation, CMB/SPK | Shareholders, creditors, employees |
| Side C importance | Critical — securities claims | Generally less critical |
| Regulatory pressure | CMB/SPK, Borsa İstanbul (BİST) disclosure obligations | Turkish Commercial Code (TTK), Competition Authority, sector-specific rules |
| Premium level | Higher (claim frequency and severity) | Lower (varies by company size) |
| Typical limit | $10M–$100M+ | $1M–$20M |
| EPL (Employment Practices Liability) add-on | Separate or linked product | Often offered combined with D&O |
What costs are covered?
| Coverage Item | Standard | Notes |
|---|---|---|
| Defence costs (legal fees) | ✓ Yes | Legal costs for investigating and defending the claim |
| Damages and settlements | ✓ Yes | Amounts paid through court judgment or settlement |
| Formal investigation costs | Conditional | Legal fees in regulatory investigations; varies by policy |
| Expert witness fees | Conditional | Included within defence costs in some policies |
| Bond costs | Conditional | Bond required during litigation proceedings |
| Fines and penalties | ✗ No | Not legally insurable; criminal sanctions excluded |
| Intentional misconduct damages | ✗ No | Coverage drops if intentional wrongdoing is established by a court |