Also known as: Large Shareholder Exclusion · Controlling Shareholder Exclusion
A D&O exclusion that denies coverage for claims brought by shareholders who own more than a specified percentage of the company.
The major shareholder exclusion bars D&O coverage for claims brought by or on behalf of shareholders who hold more than a specified ownership stake—typically 10–20% of the company. The rationale is that large shareholders (often founders or lead investors) have enough influence over the company that claims by them may be seen as self-serving or collusive. For startups, this exclusion is especially important because VCs and founders often hold large stakes. If a lead investor with 25% ownership sues the board, this exclusion could block coverage. Negotiating the ownership threshold and carve-backs (e.g., for derivative suits or claims by former shareholders) is critical.
The major shareholder exclusion bars D&O coverage for claims brought by shareholders who own more than a specified percentage of the company—typically 10% to 20%. Insurers include this exclusion because large shareholders have significant influence, and claims by them may be seen as self-serving. This exclusion is particularly relevant for VC-backed startups with concentrated ownership.
Yes, the major shareholder exclusion is highly relevant for VC-backed startups. Venture capital investors often hold 15% to 40% or more of a startup's equity. If your lead investor holds above the exclusion threshold (commonly 10-20%), claims they bring may not be covered by your D&O policy. Negotiate the threshold percentage carefully during policy placement.
The threshold varies by policy but typically ranges from 10% to 20% ownership. Some policies use 15% as the trigger point. This means if a shareholder owns more than the specified percentage, any claim they bring against directors, officers, or the company is excluded from D&O coverage. Startups should negotiate for the highest threshold possible given their cap table.
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.