National Association of Corporate Directors (NACD)

  • Published On: July 25, 2021

The past two years have thrown many unprecedented problems at management and boards of directors. The uncertain impact on potential liability and the associated insurance policies to cover those novel sources of potential liability concerns management and boards.

Navigating a ‘yellow brick road’ of liability and insurance challenges related to SPACs, COVID-19 and ESG issues may cause a make a director want to go “off to see the Wizard”!

By mid-2021, the United States has begun to shake off the economic impact of the worst pandemic in over a century. For Directors and Officers trying to lead their organizations through this unprecedented economic period, additional novel challenges threaten to impact organizations. Each of these raise D&O liability and insurance questions for 2021.First, the latest “go public quickly” device – the SPAC -- also has added additional uncertainty to the D&O liability and insurance claims environment. Second, COVID-19 itself, with its terrible loss of human life and impact on every human activity, has added to uncertainty. Third, Environmental, Social, and Governance (ESG) issues have taken on greater prominence than at any time in recent history, with corresponding impact on organizations and institutions.

Navigating the “yellow brick road” of these challenges will test management and directors.

1.     The Impact of SPACs

SPACs present novel issues and we expect both plaintiffs’ lawyers and insurance companies to take creative positions not always helpful to D&O policyholders. The rate of increase in the number of these still novel transactions has been astounding. The first SPAC transaction occurred in 2009, with only one such transaction recorded in that year.

In 2016, 13 transactions with total proceeds of $3.9 billion took place. 2020 had 248 transactions with total proceeds of $83.3 billion. So far in 2021, 374 SPAC IPO transactions have taken place with total gross proceeds of over $113 billion and an average IPO size of $302 million. The total count of SPAC transactions stands at 849—over 44 percent of them occurring so far during 2021.

The SPAC timeline involves differing time periods during which differing entities exist. Thus, claims and the associated insurance coverage have increased complexity. Since the SPAC/de-SPAC process involves a complex of multiple entities, multiple boards, and differing capacities over time, the temptation to assert unfounded arguments against coverage may be too hard for some insurance claims personnel to resist.

Further, the target company will have private company D&O liability insurance covering it and its directors and officers prior to the SPAC process. It may make sense for the target to purchase a tail policy for post-transaction claims relating to pre-transaction events.

2.     COVID-19 Echoes Through the World and the Economy

Securities suits often allege failure of the defendant company to meet disclosure requirements. At the outset of the pandemic an emergency filing extension granted by the Securities and Exchange Commission to businesses affected by COVID-19 provides some relief, but also created obligations that could create new liabilities.  So far, there have been about 11 COVID-19 related securities class actions, according to the D&O Diary. Those securities class actions include: suits against cruise lines, lawsuits against companies in the COVID-19 treatment businesses, as well as lawsuits asserting a failure to properly disclose the impact of the pandemic upon business results. These differing types of claims raised by plaintiff’s counsel will cause a reaction among insurance companies charged with protecting directors and officers.

Some insurance companies faced with a flood of claims may advance certain arguments, including the assertion of an exclusion for “bodily injury” by claiming a manage­ment “wrongful act” is a bodily injury claim. We have seen the assertion of coverage-avoiding arguments in many claims; those claims squabbles might indicate further difficult insurance claims practices ahead.

As one indication of the size of the overall COVID-19 problem, the COVID litigation tracker at the University of Pennsylvania Law School shows over 1900 insurance-related lawsuits seeking coverage for (largely) lost business income on account of the impact of COVID-19, and related governmental and business responses. That large body of lawsuits will have reverberations throughout the economy, including in claim against management and directors.

3.     Environmental, Social, and corporate Governance (ESG) initiatives

Regulators and the market are focused on ESG issues.  Indeed, the SEC announced an enforcement task force on ESG Issues.  Regulator attention will lead to continuing reaction in financial markets.

For example, Blackrock, which in 2020 had over $8.6 trillion total assets under management, announced its 2021 Stewardship Expectations – Global Principles and Market-Level Voting Guidance, which included the factor: “The demonstrated impact that sustainability-related factors can have on a company’s ability to generate long-term risk-adjusted returns.”

This current focus on ESG, is a logical extension of the earlier Business Roundtable's "Statement of the Purpose of a Corporation." In that statement, nearly 200 member CEOs eschewed a sole focus on the shorter-term interests of shareholders in favor of "a fundamental commitment to all of our stakeholders." Those stakeholders are specified as employees, suppliers, communities, and shareholders.

One commentator has even suggested that, “You should have your board of directors write and publish a company-specific, stakeholder-inclusive two-to-three page ‘Statement of Purpose’ signed by every member of your board,” and also suggested that, “Your company has an impact on society and the environment. Failure to address the negative ones can ultimately challenge your company’s license to operate.” All these initiatives lead to the possibility of a failure to get ESG “right” and suffer consequences.


The increased liability exposure suggested by the increased volatility associated with the SPAC market, the COVID-19 pandemic, and the heightened attention to ESG require thought and attention by boards and management. Plaintiffs’ counsel can be expected to over-reach, and some insurance company claims approaches can be expected to frustrate policyholders as well. Make sure that you are prepared both to protect against claims and if needed obtain the insurance you paid for, even if it means a trip to the Wizard!

William Passannante
Insurance Recovery Partner, Co-Chair Insurance Recovery Practice at Anderson Kill P.C.

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