I’ve previously blogged about In re Multiplan Stockholders Litigation (Delaware Court of Chancery, 2022), the Chancery Court’s first decision addressing fiduciary duties in the context of special purpose acquisition companies. That decision covered a fair amount of ground and we’ve posted a bunch of memos on the case in our “SPACs Practice Area;” however, a recent Woodruff Sawyer blog addresses an aspect of the decision I haven’t seen covered elsewhere — its potential implications for directors and officers liability insurance.
This excerpt addresses the importance of the court’s conclusion the claims in Multiplan were direct, not derivative:
From a D&O insurance perspective, there is a real consequence to the direct versus derivative distinction because of the way the insurance agreements work. The “Side A” part of the ABC D&O insurance program responds on a first-dollar basis, but only to non-indemnifiable claims. Settlements of derivative suits are usually not indemnifiable under Delaware corporate law, while direct suits are indemnifiable. While many SPAC D&O insurance programs are structured as traditional “ABC” programs, some SPAC teams, as a cost-saving alternative, are choosing to structure their programs as “Side A” only.
To the extent that a SPAC purchased a Side A-only policy, and the lawsuit is determined, like in MultiPlan, to be a direct one, there may be no D&O insurance response for a settlement (outside of a corporate bankruptcy).
The blog covers several other topics, including issues concerning which D&O policy would apply to claims associated with a de-SPAC transaction, the problems with acquiring tail coverage from a different carrier than the one that provided coverage for the SPAC initial public offering and the potential effects of the decision on the D&O market.
Speaking of SPACs, as Liz blogged yesterday on TheCorporateCounsel.net, the SEC has scheduled a meeting next week to propose some pretty dramatic changes to the regulatory landscape.
— John Jenkins, DealLawyers.com, March 25, 2022
