Companies should routinely assess their directors and officers (“D&O”) insurance policies to ensure they maximize coverage for business-specific and ever-evolving risks. This exercise is also important when the policyholder is a Special Purpose Acquisition Company (“SPAC”)—a public company formed for the purpose of taking an existing private company public via an acquisition (the de-SPAC transaction) free from many of the regulatory requirements that accompany traditional IPOs. Therefore, when obtaining or renewing D&O coverage for a SPAC or in connection with a de-SPAC transaction, the policyholder should be sensitive to several considerations:
- Carefully review the policy’s conduct exclusions. SPACs and de-SPAC transactions can be attractive targets for the plaintiffs’ bar with allegations of fraud, typically under SEC Rule 10b-5. Narrowly tailoring conduct exclusions can preserve coverage even when a lawsuit alleges fraudulent conduct. Create continuity among all covered entities. Claims may allege wrongful conduct that began during the SPAC and continued after the de-SPAC transaction concluded. It is critical to have the correct blend of tail and go-forward insurance to seamlessly cover claims related to pre- and post-merger conduct. Endeavor to broaden the insureds that are covered. The SPAC and de-SPAC processes can be fluid, fast-paced, and are subject to less oversight than traditional IPOs. Accordingly, individuals and entities often act as officers and directors even though not squarely serving in that capacity. For example, these processes may be directed by various committees, advisors, investors, and others. Therefore, consider the broad spectrum of non-traditional actors that may require coverage, and plan accordingly.