One of the most misunderstood aspects of Directors & Officers insurance is what happens when you leave a company's board. The answer matters enormously — and many directors find themselves uninsured when they need it most.
The Claims-Made Problem
D&O insurance operates on a "claims-made" basis. This means the policy that responds to a claim is the policy in force when the claim is first made — not when the alleged wrongful act occurred.
If you leave a board and the company's D&O policy lapses or is cancelled, claims made after that date have no cover — even if the alleged acts occurred while you were a director.
Run-Off Cover
Run-off cover (also called "tail cover") extends the claims-made period after a policy ends. When a director leaves a board, or when a company closes, winds up, or is acquired, the outgoing directors need run-off cover to remain protected.
How Long Should Run-Off Cover Last?
The statute of limitations for many director liability claims in NZ is six years. Best practice is to obtain at least six years of run-off cover when leaving a board or closing a company. Some insurers offer longer periods.
Who Pays for Run-Off?
Ideally the company pays for run-off cover as part of the director's departure arrangements. If the company cannot or will not provide it, individual directors should arrange personal run-off cover at their own cost.