does portco D&O cover designees?

why is a board seat not automatic coverage?

Weil’s private equity group described the usual habit in a 2019 note: portfolio-company D&O is bought and renewed by the CFO or controller, the board hears that it was placed, and almost nobody reads the exclusions. Weil’s phrase for that habit is that it “can be a big mistake,” especially where a sponsor acts in more than one capacity. Weil, January 2, 2019.

The case Weil discusses is Goggin v. National Union Fire Insurance Company, a Delaware Superior Court decision from November 30, 2018. Two directors of U.S. Coal also owned and managed investment vehicles that bought the company’s debt and equity. After a chapter 7 bankruptcy, the trustee sued them for breach of fiduciary duty. The D&O policy excluded loss for a claim alleging, arising out of, based upon, or attributable to an act or omission of an insured person serving in any capacity other than as a director or officer of the company. The court called the wording clear, applied Delaware’s broad reading of “arising out of,” and held that the trustee’s claims would not have been established but for the directors’ conduct for the investment vehicles. Defense costs were not covered. Weil’s point for sponsors: do not assume a policy covers someone who was wearing two hats, and do not leave that reading to management alone.

One case is not every policy. It is the reason to read this one. The post-close version of the same question is in the operating partner’s 100-day plan.

what does a capacity exclusion do to a sponsor designee?

McGuireWoods, writing on July 23, 2026 about private equity funds and portfolio companies, describes the same dual-capacity problem outside of bankruptcy. A person who is a partner or officer of the sponsor and an outside director of the company can see a claim denied under the company D&O policy when the insurer says the acts were in the sponsor role, even if both roles are in the story. McGuireWoods’s practical steps are to remove a broad capacity exclusion or, at minimum, to add wording that sponsor representatives are covered in their capacity as outside directors of the company. McGuireWoods via JD Supra.

Hunton Andrews Kurth makes the same point from the fund policy side. A general partner liability policy, which blends directors and officers coverage with professional liability for the investment firm, often extends to managers serving as outside directors of portfolio companies. That extension does not repair a company policy that excludes the claim. Hunton still tells firms to narrow or remove a broad capacity exclusion, or to state affirmatively that private equity representatives are covered as outside directors, so the two carriers do not each assign the loss to the other policy. Hunton Andrews Kurth, Law360, September 10, 2021.

• Ask whether the wrongful-act definition requires the person to be acting solely in an insured capacity. Weil flags that “solely” wording as the problem for sponsors who always act in more than one role.
• Ask for the outside-entity or outside-directorship definition, and whether the portfolio company has to be scheduled.
• Ask coverage counsel to read the company policy and the fund policy against the same claim story before you rely on either.

where does the fund’s management liability policy sit?

Hunton describes outside-director coverage on a private equity GPL policy as double excess. It responds for the outside directors if there is no indemnification available from the portfolio company and no insurance available from the portfolio company, including where the company is insolvent and cannot indemnify, or where the company’s D&O limits are exhausted. If the company policy does cover the claim, Hunton says the investors should confirm that the firm’s GPL policy is excess to the company’s policy. Other-insurance clauses are not enforced the same way in every state, so the wording and the governing law both matter.

McGuireWoods describes the failure mode when that order is missing. Fund and company policies for D&O, fiduciary, or cyber can each say the other is primary. Payment stalls even though both policies appear to apply. Their fix is other-insurance wording that makes the company policy primary and the firm’s policy excess, aligned with the indemnity agreement, plus a priority-of-payments clause on the company policy that sets the order of proceeds if the limit runs out.

Neither paper treats the fund policy as a substitute for the company’s own D&O. Hunton says the firm may benefit from coverage at the portfolio company, and that a separate D&O policy should be maintained there. If holding companies, blockers, or deal vehicles are in the claim, McGuireWoods notes that both insurers may say those entities are outside the definition of Insured. Put them on a named-insured schedule before you assume either tower responds.

The capital-partner version of this checklist is the insurance memo.

who is supposed to pay first, the company or an insurer?

Read three layers, in the order the policies and the bylaws actually use. Do not collapse them into “the D&O policy will handle it.”

1. Company indemnification. Hunton’s double-excess description of sponsor outside-director coverage starts here. If the company can indemnify the director, the sponsor policy is generally not the first stop. Whether the company is allowed to indemnify, including on a derivative claim, is a question for counsel and the charter or bylaws.
2. Company D&O. For a claim the company policy covers, Hunton says confirm the GPL policy sits excess of it. McGuireWoods adds a priority-of-payments clause so that, if the company limit is shared and runs short, the order of payment is written down. Side A, which responds to loss the company cannot indemnify, is the piece to identify by name in the form. Do not assume every private-company policy is built the same way.
3. Sponsor management liability or GPL, for the outside directorship. Hunton: this layer responds when company indemnification and company insurance are unavailable or exhausted. Get that sentence from the excess clause, not from a coverage summary.

Ask one more question McGuireWoods pairs with the clauses: do the fund’s and the company’s indemnification obligations match what the policies assume? A policy that expects the company to indemnify, and a charter that limits that indemnification, is a gap even when both documents look complete.

when does insured versus insured matter?

McGuireWoods describes the insured-versus-insured exclusion as a bar on claims brought by one insured against another insured. In a sponsor-backed company, that can be a dispute between the fund or its general partner and the company, or a dispute with a co-investor. The carrier may use the exclusion to deny the claim even though the designee is an insured person.

The fixes McGuireWoods describes are drafting choices, not automatic features. Narrow a broad insured-versus-insured exclusion to a company-versus-insured formulation, so it bars claims brought by or in the name of the company rather than every dispute among insureds. Add carve-backs where they are available for bankruptcy trustees, receivers, and creditors’ committees. On a GP/LP policy, add carve-backs for claims by limited partners against the general partner or manager. Then read the definition of Insured. A broader definition can pull more people inside the exclusion.

Coverage is subject to the forms. Only a binder or policy creates coverage. This page is not a coverage opinion.

what does an illustrative board-designee review look like?

Nothing in the example was bound. A request for wording is not an endorsement.

what should counsel and the broker mark done?