D&O insurance is taken out by companies to cover claims against senior executives for the decisions and actions they take as part of their management duties.

While insurers and brokers as per industry custom declined to give details about Volkswagen specifically, they said a German blue chip manufacturer of its size would typically buy around 500 million euros ($560 million) in D&O cover each year.

That money would be used to pay claims against VW executives from shareholders -- seen as inevitable given the 30 percent drop in VW's share price this week -- as well as legal expenses, but the cost would typically be spread among more than a dozen insurers and reinsurers, industry officials said.

Volkswagen would have to foot the bill once the limit is reached on the D&O insurance, which normally does not cover fines and penalties, insurance industry officials said.

VW faces U.S. criminal investigations after it was discovered the company programmed computers in its cars to detect when they were being tested and alter the running of their diesel engines to conceal their true emissions. Germany and France are conducting their own probes.

Insurers would be off the hook for costs related to any recall of the cars affected, said Richard Leedham, partner at London city law firm Mishcon de Reya.

"Given their apparent internal knowledge, it seems unlikely that VW will be able to claim any insurance for product recall or for product liability cover, so they won’t be able to pass on their losses,' he said.

"Any cover would likely be negated by their own knowledge or cause, as it's just for accidental or negligent damage."

While details on VW are still emerging, insurers said a scandal involving corruption at German engineering conglomerate Siemens more than five years ago could prove a model.

Siemens had taken out 250 million euros worth of D&O cover for its managers but in the end reached an agreement with its insurers, including Allianz, Zurich, Ace and Swiss Re on a claim of 100 million euros.

(Additional reporting by Carolyn Cohn in London; Editing by Catherine Evans)

By Jonathan Gould