Within the D&O marketplace, the SPAC and De-SPAC space has been difficult over the last 18 to 24 months. Pricing for D&O insurance for SPACs and De-SPACs has been extraordinarily high. In addition, the insurers are only willing to provide coverage at all with extraordinarily high self-insured retentions (SIRs). These difficult marketplace conditions have caused many buyers to consider possible insurance alternatives, such as Side-A only insurance programs. The high SIRs also raise practical questions about how the elevated retentions will be funded in the event of the claim. The possible alternative insurance structures and the questions about funding the elevated retentions in turn raise a host of complicated issues about indemnification and advancement, particularly concerning the obligations of the go-forward De-SPAC company to provide indemnification and advancement for post-merger claims against former directors and officers of the SPAC.
Anyone who has had to try to think about these complicated indemnification and advancement issues will want to review the recent Delaware Chancery Court decision in action brought by a former SPAC officer and director, Marlene Krauss, to try to enforce her advancement rights against the post-merger De-SPAC company, 180 Life Sciences Corp. In a detailed opinion, Vice Chancellor Will basically held that Krauss was entitled to advancement except with respect to claims brought against Krauss for conduct in her capacities other than as a director or officer of the SPAC. Although D&O insurance is not addressed in the Opinion, the Vice Chancellor’s rulings arguably have important insurance implications, for example, with respect to the availability of Side A coverage and the funding of SIRs. The Vice Chancellor’s March 7, 2022 Opinion can be found here.
Continue Reading Thinking About SPACs, De-SPACs, and Indemnification and Advancement
In the following guest post, Umesh Pratapa takes a look at directors’ liability issues under Indian law, and also examines the protections that are available for directors as well. Umesh is a Consultant – Liability Insurance, in India. Umesh’s article was originally published in the July 2020 issue of “Director Today”, a monthly journal of the Institute of Directors (IOD), India. Reproduced with the kind permission of the publisher, Institute of Directors, India. I would like to thank Umesh for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Umesh’s article.
An issue that frequently comes up when companies are in bankruptcy or in other forms of receivership is whether the companies’ D&O insurer can advance payment of individuals’ defense costs over the receiver’s objections. In a recent case, a Northern District of Texas judge has ruled that the individual defendants in an SEC enforcement action are entitled to have their defense expenses advanced notwithstanding the asset stay in the proceeding and despite the receiver’s objections. However the policy’s limits of liability are all but exhausted, which raises its own set of issues, as discussed below. Northern District of Texas Judge Sydney Fitzwater’s June 6, 2018 opinion in the case can be found 
Individuals serving as corporate officers take on significant potential liability exposures in the course of their performance of their duties. As a result, most companies indemnify their officers for liabilities incurred while acting as corporate officers. A recurring issue is the question of who is entitled to indemnification. In particular, a particular issue that courts have grappled with recently is the question of whether an individual with the title of “Vice President” is entitled to indemnification.
Most companies’ corporate bylaws or articles of incorporation contain indemnification and advancement provisions. While these provisions provide important protection for corporate executives if the individuals become the target of claims relating to their action undertaken in their corporate capacities, these provisions alone may not be provide sufficient protection. The provisions in the corporate documents may not address all of the issues that can arise and may not provide sufficient protection for the individuals when there are indemnification or advancement disputes and may not protect individuals from changes to corporate bylaws after the individuals have left the company. For these and many other reasons, well-advised corporate executives will want to have their rights memorialized in a separate, written indemnification and advancement agreement with the company, as discussed further below.
Although it is not something that is often considered, D&O insurance is in many ways a financial tool allowing companies to manage their indemnification obligations to their directors and officers. The D&O policy’s reimbursement coverage recompenses the company when it honors its indemnification obligations to its corporate officials, and the policy’s individual coverage (usual referred to as Side A coverage) protects the individuals when the company is unable to honor its indemnification obligations, whether due to insolvency or legal prohibition.
