D&O Insurance Run-Off Cover When a Company Enters CIRP

Vikrant D. Shetty

Sep 23

13 min read

Updated: Sep 25

D&O Insurance and Insolvency: What Actually Triggers Run-Off Cover When a Company Enters CIRP

A director's D&O policy, not the company's indemnity, protects the director once a company enters the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016, since section 14 freezes enforcement against the corporate debtor without protecting individuals. Once the company can no longer indemnify directors, only the Side A layer of a directors and officers liability policy responds, since Side B reimburses the company and becomes irrelevant once indemnification stops. Whether Side A cover survives depends on the insolvency exclusion's wording and whether the resolution professional's appointment counts as a change of control. This article examines run-off cover, the claims-made trigger, and who owns the proceeds.

Why Side A Becomes the Only Layer That Matters

The Indemnity Collapses at the Moment the Claims Begin

A conventional D&O programme has three parts. Side B reimburses the company for indemnifying its directors. Side C covers the entity's own securities liability. Side A pays the individual directly where the company cannot or will not indemnify. In solvency Side A is the layer nobody thinks about. In insolvency it is the only one with practical value: the company has no money to indemnify with, and once an interim resolution professional is in place there is nobody inside the company with either the authority or the appetite to authorise an indemnity. Section 197(13) of the Companies Act, 2013 permits a company to take out and pay for such insurance. It does not compel the company to keep paying once it is in distress.

The Section 14 Moratorium Protects the Company, Not the Individual

That asymmetry is what makes the question urgent. The moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016 (the Code) suspends suits and proceedings against the corporate debtor and freezes enforcement against its assets. It does not extend to directors in their personal capacity. Company assets are shielded; the individual is not. Proceedings brought by a resolution professional, a liquidator, creditors or a regulator run against directors personally at the very time the company itself is out of reach, which is the configuration Side A cover exists to answer.

Policy Feature, Insolvency Consequence, and What to Check Before Distress

The review below is a pre-distress exercise. Once an application has been admitted, almost none of it can be renegotiated.

Policy feature	Why it matters in insolvency	What to check before distress
Side A limit	Becomes the operative layer once indemnity is impossible; Side B and Side C are of no use to an individual	Whether Side A has a dedicated limit or shares the aggregate, and whether a non-rescindable Side A excess layer sits above it
Insolvency exclusion	A broad exclusion for claims arising out of insolvency can remove cover at the point of maximum need	Whether it is confined to specified conduct or bites on the mere commencement of a process under the Code
Insured versus insured exclusion	A professional suing in the company's name may be treated as an insured, letting the insurer decline	Whether there is an express carve out for claims by a resolution professional, liquidator or creditors' representative
Change of control clause	Appointment of an interim resolution professional and suspension of the board may convert cover into run-off	The definition of change in control and whether insolvency appointments are named within it
Run-off period	Fixes how long a director may notify a claim after the policy stops being renewed	The length available, whether it is automatic or optional, and how the premium is calculated
Control of renewal and premium	After admission the resolution professional controls company funds and the premium becomes a process cost question	Whether insured persons have a contractual right to purchase run-off themselves if the company does not
Notification of circumstances	A timely notification attaches a later claim to the current policy; a late one falls into a period with no live cover	The trigger wording, the standard applied, and the exact address and manner prescribed for notice
Conduct exclusions	Wrongful trading under section 66(2) needs no intent to defraud, but a wide dishonesty exclusion may be invoked anyway	Whether the exclusion requires a final adjudication and whether defence costs are advanced until then
Order of payments clause	Where limits are inadequate, decides whether individuals or the entity are paid first	Whether the clause exists at all and whether it expressly prioritises insured persons

The Two Clauses That Decide the Outcome

How Broadly Is the Insolvency Exclusion Typically Drafted?

Insolvency exclusions vary more than almost any other term in the Indian market. A narrow version excludes only claims for insolvent trading brought by the entity itself. A wide version excludes any claim arising out of, based upon or attributable to the insolvency, receivership, administration or liquidation of the company. Read literally, the wide version strips cover from the entire category of claim a director in a resolution process will actually face. Whether an Indian court would enforce it that broadly has not been tested, and no general counsel should want to be the test case. The negotiating ask is narrow: confine the exclusion to specified adjudicated conduct, and record expressly that commencement of a process under the Code does not by itself trigger it.

Does Section 17 Board Suspension Count as a Change in Control?

Change of control provisions were drafted with mergers in mind, not insolvency, but their language usually catches insolvency anyway: appointment of a receiver, administrator, liquidator or similar officer, or the acquisition by anyone of the right to control the composition of the board. Section 17 of the Code does something close to both. On admission the powers of the board are suspended and vest in the interim resolution professional, who exercises the authority of the board and to whom the officers of the company report. On a natural reading of most policies that is a change in control. The consequence is not that cover vanishes. It is that the policy stops responding to wrongful acts committed after that date and becomes run-off cover for acts committed before it. Directors who stay involved during the process and directors who leave both need to know exactly which date the insurer will treat as the conversion date, and it is far cheaper to ask that question in writing before admission than after.

Run-Off, the Claims-Made Trigger and Why Notification Timing Decides Cases

What Does Run-Off Cover Actually Buy?

Run-off, sometimes called tail cover, does not extend the period during which wrongful acts are covered. It extends the period during which a claim for an act already covered may be notified. Periods available in the Indian market commonly run from one to six years, with longer extensions obtainable at a price. The premium is generally expressed as a multiple of the expiring annual premium and payable in a single instalment at inception. Who pays is the difficult part. Once the company is in a resolution process the money comes out of assets the resolution professional controls, and it competes with insolvency resolution process costs. A director who wants certainty needs to have negotiated, while the company was still solvent, an express right to buy run-off personally if the company will not.

Notifying Circumstances Before the Policy Converts

D&O cover in India is written on a claims-made basis, meaning the policy answers claims first made during its period whatever the date of the underlying act. That single feature drives everything else. Most policies allow an insured to notify circumstances that may give rise to a claim, and a valid notification fixes the eventual claim to the policy in force when the circumstance was notified, however long the claim takes to arrive. In an insolvency the circumstances are visible well before any claim: a forensic or transaction audit instructed by the resolution professional, a draft avoidance application, a show cause notice, correspondence alleging preference. Notify them in the manner and to the address the policy specifies, before the policy converts to run-off or lapses. A late notification does not merely weaken the claim; it lands in a policy period in which there may be no cover at all.

Whose Money Is It: Policy Proceeds and the Insolvency Estate

Whether D&O policy proceeds form part of the corporate debtor's estate has not been answered in India. The Code is silent and there is no reported decision determining the point on D&O wording, so any confident statement either way should be treated with suspicion. The analytical starting point is section 36, which defines the liquidation estate and, in section 36(4), lists what is excluded from it. In Sunil Kumar Jain v. Sundaresh Bhatt [2022 INSC 437] the Supreme Court held that provident fund, gratuity fund and pension fund dues are kept outside the liquidation estate by section 36(4) and that the liquidator has no claim over them. The case concerns employee dues rather than insurance, but the reasoning travels: where a fund is earmarked for identified beneficiaries, the liquidator does not acquire it simply because it passed through the company.

Applied to insurance, the distinction that matters is between the policy and the proceeds. The policy is a contract the company paid for and it is hard to argue the contract itself is not an asset. Proceeds of a Side A claim are paid to an individual director for that director's own loss, and the company has no entitlement to them. The position is far more contestable on a combined policy where the company is a co-insured sharing a single limit. Until an Indian tribunal decides the question, the practical answer is structural rather than legal: a separate Side A policy, or a dedicated non-rescindable Side A limit, is much easier to keep out of the estate than a shared one.

What a Resolution Professional or Liquidator May Actually Bring

The claims a policy has to answer in insolvency come from a short and predictable list: section 43 for preferential transactions, section 45 for undervalued transactions, section 50 for extortionate credit transactions, and section 66 for fraudulent and wrongful trading. The 2026 Amendment, operative since 26 May 2026, added definitions of avoidance transaction and fraudulent or wrongful trading to the Code, extended section 66 so that a liquidator as well as a resolution professional may initiate misfeasance proceedings, and provided that avoidance and wrongful trading proceedings survive the conclusion of the process. That last change matters more to an insurance analysis than to anything else: the window in which a claim can still be made against a former director now outlasts the process itself, which is exactly the risk the length of a run-off period is meant to absorb.

What to Check Before Distress, and What to Do the Week It Becomes Likely

The Pre-Distress Review a General Counsel Should Run

Four things decide whether the programme works. The Side A limit and whether it is dedicated. The insolvency and change of control wording, read against section 17 of the Code rather than against a merger. The run-off length, and whether the right to buy it belongs to the company alone. And who controls renewal, which in practice means whether anyone will still be paying premiums at the point the company has stopped paying everything else. Listed entities have a compliance floor as well: regulation 25(10) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 requires the top one thousand listed entities by market capitalisation to maintain D&O insurance for their independent directors, while leaving quantum and covered risks to the board.

The Week Insolvency Becomes Likely

The sequence is short and it is all documentary. Obtain the full wording, the schedule and every endorsement, not the broker summary. Confirm the renewal date and pay the premium early if it falls anywhere near an expected admission. Notify every circumstance already visible. Ask the insurer to confirm in writing whether it treats an admission order and the appointment of an interim resolution professional as a change in control, and from what date. Obtain a run-off quotation and a decision on funding while there is still a chief financial officer to decide it rather than a resolution professional to negotiate with.

How Outgoing Directors Should Document Notification

Resignation ends neither the exposure nor the need to act, and by itself triggers no cover. A departing director should record, in writing to the insurer or broker and copied to the company, the date of cessation, the matters known at that date that might give rise to a claim, and a request for written confirmation of the run-off position for former directors. Keep a personal copy of the policy and of the notification. After admission the company's records pass into the custody of the resolution professional under section 18 of the Code, and a former director's ability to obtain documents from the company narrows considerably. That notification letter is often the only thing standing between a director and an uncovered claim three years later.

Frequently Asked Questions

Does the section 14 moratorium stop claims against directors personally?

No. The moratorium applies to the corporate debtor, its assets and proceedings against it. Claims against directors in their personal capacity, including proceedings under section 66 of the Code, continue unaffected, which is why individual cover matters more during insolvency than at any other time.

Is D&O cover automatically lost when a company enters CIRP?

Not automatically. The policy is claims-made, so it continues to answer claims notified during its period. What usually happens is that the change of control provision converts it into run-off from the date of admission, covering acts before that date but not after. Whether an insolvency exclusion also applies depends entirely on how that exclusion is drafted.

Can a director buy run-off cover personally if the company will not?

Only if the policy says so. Most run-off extensions are exercisable by the policyholder, which is the company, and after admission that means the resolution professional. An express right for insured persons to purchase run-off where the company does not is worth negotiating while the company is solvent, because it cannot be added later.

Do D&O policy proceeds belong to the insolvency estate?

The question is untested in India. Section 36 defines the liquidation estate and section 36(4) excludes certain assets from it, but no reported Indian decision settles the position for D&O proceeds. A dedicated Side A policy paying an individual for that individual's own loss is a stronger position than a combined policy under which the company is a co-insured sharing one limit.

Will the insurer decline a claim brought by a resolution professional?

It may try, relying on the insured versus insured exclusion on the footing that the professional acts in the company's name. The answer lies in whether the policy carves out claims brought by a resolution professional, liquidator or creditors' representative. That carve out is available in the market and should be asked for at placement.

How long should a run-off period be?

Long enough to outlast the proceedings capable of producing a claim. Since the 2026 Amendment, avoidance and wrongful trading proceedings survive the conclusion of the resolution process or the liquidation, and Indian processes routinely run well past their statutory timelines. Periods at the shorter end of the market range are unlikely to be sufficient.

What is the difference between Side A, Side B, and Side C cover in a D&O policy?

Side B reimburses the company where it has indemnified a director, Side C covers the company's own liability for its listed securities, and Side A pays a director directly where the company cannot or will not indemnify. In solvency, Side B is usually the layer that responds because the company pays first and recovers from the insurer. Once a company enters insolvency and can no longer indemnify anyone, Side B and Side C become irrelevant to an individual director, leaving Side A as the only layer that answers a personal claim.

Can an insolvency exclusion in a D&O policy be negotiated before a company gets into distress?

Yes, and it is one of the more valuable negotiations a company can run while the business is solvent, because an insurer has little incentive to narrow an insolvency exclusion once distress is already visible. A general counsel should ask the broker to confirm in writing whether the exclusion is limited to insolvent-trading claims brought by the entity itself, or drafted broadly enough to catch any claim attributable to the insolvency, including one brought by a resolution professional or a creditor.

Does the appointment of a resolution professional under the Insolvency and Bankruptcy Code, 2016, trigger a change of control clause?

It can, because change of control clauses were drafted with mergers in mind but their language, appointment of a receiver, administrator, liquidator or similar officer, or acquisition of the right to control management, usually catches the suspension of the board under section 17 of the Code as well. If the policy treats the resolution professional's appointment as a change of control, cover for future wrongful acts may end even while cover for prior acts continues, so the wording needs checking against section 17 specifically.

How is a run-off premium usually paid, and who decides to buy it?

Run-off cover is bought as a single, non-refundable premium at or before the triggering event, most often a merger, sale or the onset of insolvency, and it is standard for the outgoing board or departing directors to negotiate it before control passes to a new board, an acquirer or a resolution professional. Once an insolvency application is admitted, the company's ability to negotiate or pay for anything, including a run-off endorsement, is severely limited, which is why the decision needs to be made before distress rather than during it.

What does it mean to notify circumstances under a claims-made D&O policy?

Notifying circumstances means telling the insurer, before the policy expires or converts, about facts or a situation that could reasonably be expected to produce a claim later, even though no claim has been made yet. Most Indian D&O policies allow this and treat a properly notified circumstance as if the resulting claim had been made during the notifying period, which is why directors facing likely insolvency should notify broadly and promptly rather than waiting for an actual claim to materialise.

Which specific insolvency-related claims can a resolution professional bring against a director personally?

The claims professionals most commonly investigate are preferential transactions under section 43 of the Insolvency and Bankruptcy Code, 2016, undervalued transactions under section 45, extortionate credit transactions under section 50, and fraudulent or wrongful trading under section 66. Each provision carries its own test and its own consequence, and a D&O policy's response to each depends on how the insolvency exclusion is drafted rather than on a single blanket answer.

What documents should a company gather in the week an insolvency application becomes likely?

The full policy wording, the schedule and every endorsement should be obtained directly from the insurer or broker rather than relied on from a broker summary, since summaries frequently omit sub-limits and exclusion carve-backs that matter once a claim is made. The renewal date should be confirmed and the premium paid early if it falls near the expected date of admission, and every circumstance that could give rise to a claim should be notified to the insurer in writing before the policy converts or lapses.

Should a departing director rely on the company to notify the insurer after resignation?

No. Resignation ends neither a director's exposure to a later claim nor the need to act, and it does not by itself trigger any notification to the insurer. A departing director should independently write to the insurer or broker, copying the company, recording the date of cessation and the matters known at that date that might give rise to a future claim, since relying on the company to make that notification leaves the director exposed if the company fails to do so.