Does My Medical Device Company Need Directors and Officers Insurance?

If your device company has a board, outside investors, or a funding round in progress, the answer is usually yes. Directors and officers insurance protects the personal assets of the people who run and govern the company against claims that they breached a duty in that role. It is not a public-company product, and it is not covered by the product liability or E&O policies a device company already carries. Those answer claims about the device and the services around it. D&O answers claims about how the company was led.

What D&O Actually Covers

D&O responds to claims against directors and officers personally for alleged wrongful acts in managing the company: breach of fiduciary duty, misrepresentation to investors, mismanagement, or failure to oversee. The claimants are usually investors, shareholders, regulators, competitors, or sometimes employees alleging a governance failure rather than an employment one. The harm alleged is financial and tied to a decision or disclosure, not to a patient injury.

That is a different exposure from the rest of the device program. Products liability answers physical injury from the device, and errors and omissions answers a failed service or software function. Neither reaches a claim that the CEO misstated the clearance timeline to investors or that the board failed to supervise a regulatory problem. Without D&O, those claims land on the individuals’ personal assets and on the company’s balance sheet directly.

When It Stops Being Optional

The trigger is rarely revenue. It is structure and outside money. Several events move D&O from a maybe to a need.

The first is institutional capital. A priced round, especially a Series A, frequently comes with a D&O requirement written into the term sheet, because investors taking board seats want their own exposure covered. The second is board formation. The moment outside directors join, the company has people carrying governance duty who will expect protection before they serve. The third is any event that raises the stakes of a disclosure: a financing, a partnership, an acquisition discussion, or a regulatory milestone where what management said and when becomes something a plaintiff can test.

Founders consistently underestimate this because the exposure is invisible until a relationship sours. A pre-revenue device company can feel too small for D&O right up until an investor dispute or a down round produces a claim that the founders misrepresented the company’s prospects. At that point the coverage cannot be bought retroactively. The decision has to be made before the claim, which is the nature of management liability.

How It Fits the Program

D&O usually enters as part of a management liability program rather than as a lone policy. It commonly packages with employment practices liability, which answers wrongful-termination and discrimination claims from employees, and sometimes fiduciary liability for the company’s benefit plans. For a venture-backed device company, the structure tracks the stage: lighter at formation, expanding as the board grows, the cap table broadens, and the regulatory and commercial stakes rise. The same diligence logic that investors apply to the Series A insurance review applies here, since investor counsel will read the D&O placement against the company’s governance and disclosure profile.

Match the limit to who could bring a claim, not to the company’s headcount. A small team with a sophisticated investor base and an active financing carries more D&O exposure than its size suggests, because the people who sue under D&O are usually the ones who put money in or sit on the board. The same is true as the company approaches Class II commercialization, where the commercial and regulatory disclosures multiply and so do the statements a claimant could challenge.

D&O also tends to be a gating item rather than a nice-to-have. A funding round can stall while the policy is placed, so treating it as a checklist item ahead of the raise, rather than a scramble during it, keeps the financing on schedule. What happens to the D&O at close, including run-off and prior-acts coordination, is covered in what happens to your insurance program when your life sciences company gets acquired.

Before your next financing or board addition, confirm whether your term sheet requires D&O and whether the leadership team has any coverage for a claim about how the company was run. A specialty review through Tower Street Insurance can size a management liability program to your board, your investors, and the stage your device company is actually in.