Directors' insurance and what it does not cover: step by step starts with the exclusions clause, not the limit of indemnity, because that clause decides most declined claims. Fraud, deliberate breach, prior knowledge and insured-versus-insured claims are typically carved out. A director facing a declined claim has a short window to identify the ground invoked and assemble the underlying documents.
Who this concerns
The question comes up in one of three ways. A board member or managing director learns, usually from a broker's renewal note, that the D&O policy carries more exclusions than cover. A director already facing a claim from a liquidator, a creditor, or a shareholder is told by the insurer that a specific ground is excluded. Or an incoming director in a group structure is asked to check whether the parent company's global policy actually extends to a Swedish subsidiary on the same terms.
The concern is not limited to sitting board members. A person who acts as a director in substance, without formal appointment, a former director in the run-off period after resignation, and a shadow director instructing the board from outside all fall inside the same coverage question, because the policy defines "insured person" by function, not by title alone. Whether any of them is actually covered for a given claim depends on how the exclusions are worded, not on the limit stated on the schedule. The broader mechanics of that exposure sit within the wider director liability practice.
Companies with a foreign parent or a group-wide policy face an additional layer: the policy may be issued under a different governing law, with a different claims-made trigger, and a territorial scope that does not automatically include Sweden.
What the law says
Directors' insurance is a private contract between the company, or the director, depending on who is named as policyholder, and an insurer. It is not a statutory entitlement, and no rule of Swedish company law compels an insurer to respond to a claim the policy excludes. Under Swedish law as it currently stands, a director's underlying liability toward the company, its shareholders, or its creditors exists independently of whether any policy responds to it; the insurance sits on top of that liability, it does not create or remove it.
What the policy actually covers is a matter of contract interpretation: the wording of the exclusion clause, the definitions of "claim," "circumstance," and "insured person," and the retroactive date stated in the schedule. General principles of insurance contract interpretation apply, meaning ambiguous wording tends to be read against the party who drafted it, but a clearly worded exclusion is enforceable as written. No statute overrides that outcome merely because the underlying conduct also engages the director's liability toward the company.
This is why the step-by-step approach starts with the policy document, not with the alleged wrongdoing: the exclusion clause, not the standard of care, decides whether cover exists.
How it works in practice
Read the exclusions before the sum insured
The limit of indemnity on the schedule tells a director almost nothing. What decides the outcome is the exclusions section, usually several pages further into the policy wording, listing fraud and dishonesty, deliberate or wilful breach of duty, fines and penalties, pollution, bodily injury and property damage, war and terrorism, and, in most policies, claims brought by one insured against another. A director should locate this section and read it before assuming the headline sum insured is the relevant figure.
Identify which exclusion is being invoked
A declinature letter from the insurer names a specific clause. That clause has to be checked against the actual policy wording, not against the insurer's summary of it. Insurers occasionally apply an exclusion more broadly than its wording supports, particularly the fraud exclusion, which in most policies requires a final adjudication of dishonest conduct, not merely an allegation.
Notify within the policy's own deadline, not a statutory one
There is no statutory notification period for a D&O claim; the deadline is set entirely by the policy. It is commonly expressed as a number of days from the point the insured person became aware of a claim or a circumstance that could give rise to one, not from the date of the underlying event. Missing that window is one of the few grounds an insurer can rely on without having to argue the merits of the underlying claim at all.
Separate the claim from the circumstance
Most policies distinguish a "claim," a demand already made, from a "circumstance," a fact pattern that could lead to one. Notifying a circumstance early, before it crystallises into a formal claim, is what preserves cover under a claims-made policy, particularly across a renewal where the policy period changes.
Check the retroactive date against the conduct
A claims-made policy responds to claims made during the policy period, but only for conduct on or after the retroactive date stated in the schedule. Conduct that predates that date is excluded even if the claim itself is made while the policy is live.
Request the declinature in writing, with the clause cited
An oral indication that a matter "isn't covered" from a claims handler is not a decision. A director should request the declinature in writing, with the specific wording relied on, before treating cover as lost.
Check whether the company's own indemnity fills the gap
Many articles of association or side letters give a director a contractual indemnity from the company itself, separate from the insurance. Where the policy excludes a claim, this indemnity, and the company's own financial capacity to honour it, becomes the next question, not an afterthought.
Gather the documents before instructing anyone
The documents needed at this stage are: the full policy wording, not just the schedule; the proposal form completed at inception; all correspondence with the insurer including the declinature letter; board minutes covering the decision under scrutiny; and any prior notifications of circumstances under the same or a preceding policy period.
What to check, concretely, before assuming a claim is excluded:
- The exact wording of the clause the insurer has cited, not its summary
- Whether the retroactive date predates the conduct in question
- Whether the claim was notified as a circumstance under an earlier policy period
- Whether the insured-versus-insured exclusion has a carve-back for claims brought by a liquidator or administrator
- Whether the policy is the company's own or a group policy issued abroad, and what governing law clause it carries
- Whether a sub-limit, rather than a full exclusion, actually applies to the ground in question
Frequently asked questions
Does directors' insurance cover fines and penalties imposed on a director personally?
Almost never. Fines, penalties, and other sanctions imposed by a court or an authority are excluded in essentially all D&O wordings, because insuring them would undermine the punitive purpose of the sanction. Defence costs incurred while contesting the fine are usually still covered up to the point of a final, non-appealable finding; the fine itself is not.
What happens if the company becomes insolvent before a claim under the policy is resolved?
The policy itself usually survives insolvency, since it is an asset of the company or a separate benefit for the directors named as insured persons, but a liquidator may take a different view of which claims to pursue, and the insured-versus-insured exclusion can be read to catch claims the liquidator brings on the company's behalf. This is one of the more contested points in practice and is worth checking against the specific wording before assuming cover either way.
Can a director who has resigned still claim under the policy for conduct during their term?
Only if the policy includes run-off cover, either as a standing feature or purchased separately at resignation or on a change of control. Without it, a claim notified after the director has left and after the policy has lapsed or been replaced can fall into a gap between the old and the new insurer, even though the conduct occurred while the director was in office and covered.
The numbers
There is no statutory figure to cite here, and none is invented. Under Swedish law as it currently stands, no legislation fixes a notification deadline, a minimum retroactive period, or a mandatory limit of indemnity for D&O cover; every one of those figures is set by the individual policy. What is worth tracking, in the absence of a statutory benchmark, is the interaction between three contractual figures: the aggregate limit, which most policies erode with defence costs before any liability is even established; the retroactive date, which is fixed at inception or renewal and rarely moves in a director's favour after the fact; and the deductible or excess, which in group policies is sometimes allocated per claim rather than per policy period. None of these is a fixed sum that can be quoted in the abstract; each has to be read off the specific schedule in front of the director.
Where it usually goes wrong
The fraud exclusion is read too broadly. Most wordings require a final, non-appealable adjudication of dishonest or fraudulent conduct before the exclusion bites; an allegation, an ongoing investigation, or even a first-instance finding under appeal is not enough to trigger it in most policies, yet insurers sometimes decline on the strength of an allegation alone.
The insured-versus-insured exclusion catches claims nobody expected it to catch. A claim brought by a parent company against a subsidiary's director, or by one director against another in a shareholder dispute that also happens to be a company matter, can fall inside this exclusion even where the commercial reality looks nothing like the collusive claims it was designed to prevent.
Cross-border cover is assumed rather than checked. Where the policy is issued by or through a foreign parent company, the governing law clause, the currency of the limit, and the territorial scope may not extend automatically to conduct or proceedings in Sweden. A group policy negotiated for the jurisdiction of the parent's headquarters can leave a Swedish subsidiary's directors with materially different, sometimes thinner, cover than the group intended, particularly where the claim is brought in a Swedish court applying Swedish procedural rules the foreign-drafted wording never anticipated.
The run-off gap is discovered too late. A director who resigns, or a company that is acquired, changes the insurer's exposure at that exact moment; without run-off cover bought at the point of change, conduct from years of clean service can end up uninsured simply because the claim surfaces after the change, not before it.
Defence costs erode the limit before liability is decided. In a policy with a shared limit for defence costs and indemnity, a long-running dispute can consume most of the available cover in legal fees before any finding on the underlying conduct is made, leaving little protection for the outcome the policy was bought to cover in the first place.
What to do next
Everything above can be checked against the policy wording without external advice: the exclusions clause, the retroactive date, the notification deadline, and whether run-off cover exists. What self-review cannot do is assess how a specific exclusion applies to a specific set of facts once a claim has actually been made, or whether the company's own indemnity realistically covers the gap a declined claim leaves behind. That assessment depends on the wording in front of a director, the sequence of events, and the company's financial position, not on a general reading of what D&O policies typically exclude.
Where the exposure connects to creditor-related conduct rather than a straightforward coverage dispute, the analysis of likely cost and outcome in creditor-related offences sets out how that category of claim is typically assessed once insurance has been ruled out or exhausted.
For a review of a specific policy against a specific claim, book a director liability assessment before responding to the insurer in writing.