Generally, Side A-only coverage is attractive to many SPAC teams for two reasons: 1) it comes with zero self-insured retention (similar to a deductible) and 2) it is cheaper than ABC coverage. However, Side A-only policies respond only to protect directors and officers of the SPAC when indemnification is not available. These polices leave the SPAC entity completely uncovered, exposing it to the possibility of having to cover its lawsuit/investigation costs by leaning on its sponsor or dipping into its at-risk capital.

Nevertheless, many SPAC sponsors have recently opted for Side A-only coverage because they do not anticipate having enough funds in the SPAC entity to satisfy the typical $2.5 million retention that a SPAC ABC policy would require. Also, from the risk perspective, the SPAC market has seen only a handful of costly pre-business combination lawsuits and investigations. All these factors lead most SPAC sponsor teams to conclude that they’d rather face the risk of the lawsuit and dissolution of the SPAC entity than pay a higher premium for an ABC policy.

Of course, each SPAC IPO has unique nuances, underscoring the importance of working with an experienced SPAC D&O insurance broker.