If a portfolio company has D&O insurance, when does a private equity firm’s own insurance provide coverage for a claim against a board designee?
Many private equity firms now have their own insurance coverage for claims relating to the firm’s operations and fund management. As one of the components of such policies, coverage is provided for the activities of the firm’s designees on portfolio company boards. If a board designee is sued in connection with his or her role with a portfolio company that has D&O insurance, then insurance coverage under two different policies could apply. The private equity firm’s policy, however, is last in line to be tapped. Indeed, the private equity firm’s insurance policy typically is written on what insurers call a “double excess” basis, meaning that the private equity firm’s policy will respond to such a claim only after both the portfolio company’s D&O insurance and its indemnification obligations have been fully exhausted. Practically speaking, this means that the private equity firm’s policy will likely only come into play when a portfolio company is insolvent or dissolved. Keep in mind, how
