We have D&O coverage as an asset manager, but our portfolio companies also have D&O coverage. Are they redundant?
No. They are generally complementary rather than redundant—but the payout can get complicated. Think of the insurance architecture as separate towers protecting different organizations and different capacities.
Suppose Fund A owns Portfolio Company B.
Portfolio Company B has:
$10 million of D&O coverage
That policy principally protects:
Portfolio Company B, its directors and officers, and other insured persons or entities defined by the policy.
Fund A has:
$20 million of investment-management / PE management-liability coverage
That policy may protect:
Fund A, the GP, the management company, investment professionals and, depending on the wording, individuals serving on outside boards.
These are not simply two policies covering exactly the same exposure.
Where it gets more complicated: the fund representative sits on the portfolio-company board
Assume Sarah is a partner at Fund A and also serves on Portfolio Company B’s board.
A lawsuit names:
- Portfolio Company B
- B’s CEO
- Sarah personally as a director of B
- Fund A
- the GP
Now both insurance programs may become relevant.
Layer 1 — Portfolio-company indemnification
The first question is:
Can Portfolio Company B legally and financially indemnify Sarah?
If it can, B may indemnify her, and B’s D&O program may reimburse the company under Side B, subject to the policy wording.
Layer 2 — Portfolio-company D&O
Sarah may also qualify as an insured person under B’s D&O policy because she is serving as a director of B.
That policy may therefore respond to claims against her in that capacity.
Layer 3 — Fund Outside Directorship Liability
The fund’s policy may include Outside Directorship Liability, or ODL, intended to protect fund professionals serving on outside boards.
In many programs, ODL is structured to sit excess of the portfolio company’s indemnification and insurance.
That can create a structure that looks like:
Portfolio-company indemnification → Portfolio-company D&O → Fund ODL
rather than two insurers simply splitting the loss.
The exact outcome depends on:
- “Other Insurance” wording
- ODL provisions
- indemnification rights
- Side A wording
- difference-in-conditions provisions
- excess-policy wording
- exclusions
- allocation
- priority-of-payments language
What happens in a $25 million claim?
A simplified example:
Portfolio-company D&O:
$10M
Fund ODL:
$20M
Sarah is sued in her capacity as a portfolio-company director.
Assume the claim is covered, there are no exclusion issues and the fund’s ODL coverage is properly excess.
The simplified waterfall could be:
First $10M: Portfolio-company D&O
Next $15M: Fund ODL
That illustrates the concept, but it is not automatically a $30 million combined tower. The policy language determines how the programs actually coordinate.
What if the portfolio company is bankrupt?
This is where the structure becomes even more important.
If the portfolio company is bankrupt or otherwise unable to indemnify Sarah, Side A protection can become critical.
That is why I would look very carefully at the Side A tower, ODL wording and priority-of-payment provisions rather than simply adding up the headline limits.