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Articles

CLAIMS RELATED TO SPECIAL PURPOSE ACQUISITION COMPANY AND D&O INSURANCE FACE INCREASED INSURER SCRUTINY

American Bar Association (ABA)

  • Published On: September 30, 2021

Directors and officers may face both increased scrutiny of claims related to special purpose acquisition company (SPAC) transactions and overly aggressive claims denials from their directors’ and officers’ (D&O) liability insurance companies. The incorrect assertion of coverage exclusions—the “bump-up” exclusion is but one—increases director and officer uncertainty.

The year 2021 may be known as the year of peak SPAC, given the explosion in SPAC initial public offering (IPO) transactions. SPACs are a type of shell company—sometimes called a “blank check” company—set up by a group of investors or sponsors for the specific purpose of raising money through an IPO with the sole objective of purchasing another company. SPACs differ from traditional IPOs and companies in that the SPAC itself has no operations, and its assets usually consist of only the proceeds of the IPO.

The rate of increase in the number of these still-novel transactions has been astounding . . . .

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