Once you have any company that has raised a priced round or has outside board members, yes. Directors and officers coverage answers claims about how the business is run, not about the work you do for clients. That includes partner disputes, investor claims, and personal exposure for founders. Who this is for: Software companies and development shops with partners, investors, a board, or a sale on the horizon.
The short version
- Professional liability covers your client work. Directors and Officers (D&O) covers your management decisions.
- Partner disputes and investor claims are the two most common private company triggers.
- Expect $1,500 to $6,000 a year for a $1M limit at a small private firm.
- Investors and nonprofit boards frequently require it before you join or close.
- If you sponsor a retirement plan, ask about fiduciary liability alongside it.
Who actually needs it
Directors and officers coverage protects the people who run the business from claims about how they ran it. For software companies and development shops it becomes relevant once any company that has raised a priced round or has outside board members. Before that point, most owners are better served putting the money into professional liability limits.
| Situation | Is directors and Officers worth it? |
|---|---|
| Solo owner, no outside money, no board | Rarely |
| Multiple partners with a buy sell agreement | Yes, disputes between owners are a common trigger |
| Outside investors or a priced round | Yes, and investors usually require it |
| A nonprofit or association board seat | Yes, and often required before you can serve |
| Preparing for a sale or merger | Yes, including run off coverage after closing |
What the claims actually look like
- A departing partner alleging the remaining owners breached the operating agreement.
- An investor claiming the financial picture presented at a raise was misleading.
- A creditor or lender pursuing officers personally after a difficult wind down.
- A regulator investigating the conduct of management rather than the work product.
- An employee claim that names the founders individually alongside the company.
None of those are professional liability claims. Professional liability covers your work for clients. Directors and Officers covers decisions about the business itself, and that distinction is what leaves owners personally exposed when they assume one covers the other.
What it costs and how it is structured
For a private software company, a $1M directors and Officers policy commonly runs $1,500 to $6,000 a year, and it is usually written as a package with Employment Practices Liability Insurance (EPLI) and fiduciary liability. Three sides of the coverage matter: Side A protects individuals when the company cannot indemnify them, Side B reimburses the company when it does, and Side C covers the entity itself.
If you have a retirement plan, ask about fiduciary liability at the same time. Serving as a plan fiduciary is a personal role, and the the Employee Retirement Income Security Act (ERISA) bond most firms carry protects the plan against theft, not the fiduciary against a claim.
What this looks like in practice
Illustrative example. Numbers are typical of claims we see and are not a promise of how any specific claim would be handled.
The setup: A software company where two of the three owners disagreed over a buyout valuation.
The claim: The matter started with a misconfigured storage bucket in a client environment. 41,000 customer records were exposed and the client tendered the notification cost.
The cost: $78,000 in defense costs and $265,000 in settlement, $343,000 in total, paid inside the policy limit after the retention.
The lesson: The dispute was about how the business was governed, not about client work, so the professional liability policy had nothing to say. A management liability policy would have funded the defense.
Frequently asked questions
Q: Does a private software company need directors and Officers insurance?
It becomes worth buying once you have any company that has raised a priced round or has outside board members. Solo owners with no outside money and no board usually get more value from higher professional liability limits first.
Q: What is the difference between directors and Officers and professional liability?
Professional liability covers claims about the work you do for clients. Directors and Officers covers claims about how you run the business, including disputes with partners, investors, and creditors.
Q: How much does directors and Officers cost?
For a private firm, roughly $1,500 to $6,000 a year for a $1M limit, often bundled with employment Practices Liability Insurance and fiduciary liability in a management liability package.
Q: Do investors require directors and Officers?
Frequently, yes. Once outside capital comes in or independent board members join, directors and Officers is usually a condition of the deal and it protects those individuals personally.
Q: What is run off coverage?
Coverage that keeps a directors and Officers policy responsive to claims made after a sale or wind down, for acts before the transaction. It is normally negotiated as part of the deal.
Q: Do I need fiduciary liability too?
If you sponsor a retirement plan, yes. The the Employee Retirement Income Security Act bond most firms carry protects the plan from theft. It does not protect you personally against a claim for how the plan was managed.
How Morrow helps software companies and development shops
Morrow is a licensed independent commercial insurance brokerage that specializes in software developers & saas companies. Deciding whether management liability belongs in your program is exactly the kind of question we answer every week, and because we place this coverage every day we know which carriers write it well, which forms are broad, and which contract language actually needs an endorsement behind it.
- We read the contract clause and tell you what your current policy already does and does not do.
- We market your account to carriers that have real appetite for software companies and development shops rather than whoever answers first.
- We issue certificates the same day a client asks, with the endorsements listed correctly.
- We stay on the file at renewal so limits, retroactive dates, and contract requirements do not quietly drift.
Get in touch and we will see how we can help. Tell us what you do, send over any contract that is driving the requirement, and send us the question and we will tell you where you stand. Start at morrowinsure.com or reach the team through the contact options on that page.
One more thing. This article is general information for software companies and development shops and is not legal advice, tax advice, or a statement of coverage. Policy wording controls in every case, and forms vary by carrier and by state. Have a licensed advisor review your own policy and your own contract before you rely on any of it.
Last updated: Reviewed by the Morrow commercial lines team. Last updated August 2026.