1. The Portfolio Company Gets Sued

A portfolio company faces a lawsuit - maybe a shareholder claim after a down round, an employment dispute involving executive misconduct, or a regulatory enforcement action.

The claim names the company, the CEO, and board members.

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2. The VC Firm Is Pulled Into the Lawsuit

Because a partner at the fund holds a board seat (or even attended board meetings informally) the VC firm and its general partners are named as defendants.

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Even if the firm isn’t alleged to have directly caused harm, plaintiffs often name the fund to create leverage or extract larger settlements.

3. The Portfolio Company’s D&O Policy Responds — But It Has Limits

Portco’s D&O policy provides initial defense and indemnity, but:

• May run out of limits if multiple defendants are named

• May exclude the VC firm if not scheduled

• Likely prioritizes company insiders (Side B/C) over the VC board designee

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The GPL policy must be structured as excess over the portfolio company’s D&O - not duplicating it, but stepping in when it fails or is exhausted.

4. GPL Becomes the Backstop for the Fund and the Partners

A properly structured GPL policy:

• Covers the fund itself, the management company, and individual GPs

• Responds to defense and settlement costs when named in portfolio-related suits

• Can include Side A-style protection for individuals if indemnity is unavailable

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5. This Only Works If the Portco Has D&O

Without D&O at the portfolio company level, the GP and fund may be exposed from day one - especially if they’re on the board or providing strategic direction.

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At URM, we ensure portfolio companies have adequate D&O in place, and that the GPL policy is structured to sit excess with clean language for claim coordination.

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Key Takeaway

GPL is not a replacement for portfolio company D&O - it’s the overflow valve.

When your firm is named, and the portco’s policy is either exhausted or insufficient, GPL protects your balance sheet and your partners.

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