3.0
Venture Capital and Private Equity Claims Trends
For our financial services clients, we provide an unmatched claims advocacy platform led by Walker Newell, a former litigator with deep experience leading high-stakes securities matters with the SEC and premier defense firms. Put simply, Woodruff Sawyer has the most experience in the insurance industry with the investigations, litigation, and claims issues that matter most to our venture capital and private equity clients. We leverage that experience to drive the best possible results for our clients.
In recent years, three types of claims have been the most significant risks for our private equity and venture capital clients.
3.1
SPAC Litigation Against Sponsors
Securities class action litigation related to SPACs has been a source of significant claims in recent years for VC and PE GPL programs. While SPACs in these cases typically have a D&O runoff policy in place, at times the limits may be lower than the plaintiffs’ settlement demand. The D&O program for the de-SPAC operating company comes into play, as well. In some cases, individual board members or the VC or PE sponsors themselves are also named in the litigation, potentially triggering the GPL policy. As SPACs are beginning to return, we will be keeping an eye on this trend.
3.2
Outside Director Liability (ODL) Claims
Outside director liability (ODL) claims have been consistent and common over the years, which is not surprising given the overall frequency of securities litigation. As a reminder, ODL coverage is the part of the GPL policy that covers claims against partners as a result of their roles as directors for portfolio companies. For example, if shareholders of a portfolio company file a securities case or derivative lawsuit naming your firm’s designated director on the company’s board, your ODL coverage may be triggered.
While the underlying portfolio company’s insurance program should respond first to these claims, well-constructed ODL coverage is a critical backstop to protect firm and individual balance sheets if the company’s insurance has coverage gaps or inadequate limits.
3.3
Government Investigation Claims
Over the years, our clients have faced inquiries and investigations from the SEC and other government and regulatory bodies. These claims are not high frequency—last year, about 10% of our GPL claims involved some type of government inquiry—but they are often sensitive and high-risk matters. These claims can be broken down into two main categories.
First, we have seen an increase in SEC investigations focused on potential issues at privately held portfolio companies. In these matters, an investment firm and/or its designated director on the portfolio company’s board may receive a subpoena for documents and/or testimony, and the government may seem to be focused on the investment firm’s potential involvement in problems at the portfolio company. The question of whether there is coverage for the costs associated with these investigations is tricky and requires careful coordination between your outside counsel and your insurance advisors.
Second, we have seen SEC investigations focused directly on the investment advisory practices of our clients. While such investigations are rare, they are high-risk and can be very expensive to defend.
We have seen an increase in SEC investigations focused on potential issues at privately held portfolio companies.