DealLawyers.com Blog

Woodruff Sawyer recently published this “Guide to D&O Insurance for DeSPAC Transactions.” The Guide is full of useful nuggets about the D&O insurance process for deSPAC deals.  For instance, this excerpt notes that the traditional practice of having the SPAC buy D&O insurance policies that included pre-negotiated terms for a tail policy may not be the right approach today:

Historically, the practice was for SPACs to purchase D&O insurance policies that were of the same duration as the SPAC (be it 18 months or two years). These policies also had pre-negotiated terms for the SPAC tail policy. This meant that carriers and the SPAC sponsors knew at the time of the SPAC IPO what the cost of the tail policy would be.

However, having the SPAC purchase a separate tail may no longer be the best option. SPAC teams and their target companies will want to discuss the possibility of placing a combined go forward D&O policy that covers:

– The SPAC and its directors and officers for post-merger claims related to pre-merger activities
– The private company target and its directors and officers for post-merger claims related to pre-merger activities
– The go-forward operating company and its directors and officers for future claims

This kind of policy is sometimes referred to as “the SPACage” or “the de-SPACage”.

Why purchase this kind of combined policy? The main reason is that the combined policy can save substantially on premium costs compared to the historical way of doing things.

The Guide acknowledges that this new approach is more complicated and requires negotiations with the carrier to appropriately tailor policy language, and that it only works when everyone is on the same page when it comes to policy terms and limits, especially since there will be one limit covering many different parties.

– John Jenkins