Also known as: clawback insurance · clawback coverage · compensation clawback coverage
A D&O coverage enhancement that reimburses a director or officer for the personal legal costs of defending an attempt to claw back their compensation, though not the repayment of the compensation itself.
Clawback insurance is a Directors and Officers (D&O) coverage enhancement that reimburses an individual director or officer for the personal legal costs of defending an attempt to recover, or claw back, compensation they were paid. Clawbacks are driven by federal law: Sarbanes-Oxley Act Section 304 can require a CEO or CFO to return bonus and incentive-based compensation after a misconduct-related financial restatement, and Dodd-Frank Act Section 954 directs the SEC and the stock exchanges to require listed companies to recover erroneously awarded incentive pay following a restatement. Importantly, the coverage pays the cost of defending against the clawback demand; it does not reimburse the compensation an executive is ultimately ordered to repay. It is almost always sold as an add-on endorsement to a D&O policy rather than as standard coverage. For a startup, this matters most as it approaches an IPO or public listing, when these federal clawback rules begin to apply.
Clawback insurance is an add-on to a Directors and Officers (D&O) policy that reimburses an individual director or officer for the legal costs of defending a demand to recover compensation they received. It responds when a company or regulator seeks to claw back bonuses, incentive pay, or equity compensation, typically after a financial restatement. The coverage funds the defense of that demand, not the repayment of the money itself.
No. Clawback insurance typically pays the legal costs of defending against a clawback demand, not the compensation an executive is ultimately required to return. Insurers generally will not indemnify the repayment of clawed-back pay, in part because the underlying statutes are designed to recover it and reimbursing it could defeat the purpose of the law. Read the endorsement carefully to confirm exactly which defense costs are covered.
Two federal laws are the main drivers. Sarbanes-Oxley Act Section 304 can require a CEO or CFO to forfeit bonus and incentive-based compensation, plus profits from stock sales, received during the 12-month period after the company first issued or filed the financial statements that later had to be restated because of misconduct. Dodd-Frank Act Section 954 added Section 10D to the Securities Exchange Act, directing the SEC and the stock exchanges to require listed companies to adopt policies recovering erroneously awarded incentive pay after a restatement; the SEC adopted this as Rule 10D-1.
Definitions are educational and may be modified by your specific policy language, endorsements, and state rules. For regulatory guidance, refer to the California Department of Insurance or the NAIC.
Last updated: July 2026.