How to Tailor Your SPAC D&O Coverage: Industry-Specific Considerations

If you're in the SPAC game, you know that your target industry can make a big difference in how you operate. Not all sectors are created equally, after all.

But, did you know it could also impact your D&O insurance? It's true: The industry you're eyeing can significantly affect your risk profile and insurance needs.

In this piece, I'd like to take you through a few different considerations for a few different industries. I can't cover everything here, but even so, this should give you a good idea of what to expect.

Tech and Innovation

Intellectual Property Risks

If you're on the hunt for the next tech unicorn, intellectual property (IP) issues should be top of mind. Tech companies often live and die by their patents and trade secrets. Your D&O policy should cover claims related to IP infringement or misappropriation. Don't assume this is standard. Many policies exclude or limit IP-related coverage.

Cybersecurity Concerns

With great tech comes great responsibility…for data protection. Cyber breaches can lead to shareholder lawsuits faster than anything. These are often very expensive to handle, and costs can quickly spiral out of control. Make sure your policy includes coverage for claims stemming from cybersecurity incidents. Some insurers offer specific cyber endorsements for D&O policies, so it's worth looking into.

Regulatory Scrutiny

Tech companies, especially in areas like fintech or biotech, often face heavy regulatory scrutiny. Your policy should have robust coverage for regulatory investigations and actions. Remember, responding to a regulatory inquiry can be expensive — even if no wrongdoing is found.

Healthcare

FDA Approval Process

For SPACs targeting biotech or pharmaceutical companies, the FDA approval process is a major risk factor. Shareholders might sue if a key drug fails to get approval, for example. Look for policies that specifically cover claims related to the FDA approval process.

Privacy and Data Protection

Healthcare companies handle sensitive patient data. HIPAA violations, for example, can lead to both regulatory actions and private lawsuits. Ensure your D&O policy covers claims related to data privacy breaches.

Clinical Trial Risks

If your target company conducts clinical trials, that's another potentially big layer of risk. Your policy should cover claims arising from issues with clinical trials, including allegations of flawed study design or misrepresentation of results.

Green Energy

Environmental Claims

SPACs in the green energy sector can face unique environmental risks. Your D&O policy should cover claims related to environmental damage or failure to comply with environmental regulations.

Government Incentives

Many green energy companies rely on government incentives. Changes in these programs can dramatically affect a company's prospects and financial situation. Consider coverage for claims alleging misrepresentation of the impact of government incentives on the company's financial projections.

Technology Performance Claims

Green tech often involves new, unproven technologies. If these technologies don't perform as expected, shareholders might sue. Look for policies that cover claims related to product performance, especially for new or emerging technologies.

Real Estate

Valuation Disputes

Real estate deals often hinge on property valuations. Your policy should cover claims alleging improper valuation methods or misrepresentation of property values.

Zoning and Land Use Issues

Zoning changes or land use restrictions can significantly impact real estate projects. Consider coverage for claims arising from zoning issues or failure to obtain necessary permits.

Environmental Contamination

Environmental issues can be a major liability in real estate. Ensure your policy covers claims related to environmental contamination, including historical contamination that might be discovered post-merger.

Financial Services

Regulatory Overload

Financial services companies face a complex web of regulations. Your D&O policy should have particularly robust coverage for regulatory actions and investigations.

Consumer Protection Claims

With increased focus on consumer protection in financial services, be sure your policy covers claims alleging unfair or deceptive practices.

Market Conduct Risks

For companies involved in trading or investment management, market conduct is a key risk area. Look for policies that cover claims related to insider trading, market manipulation, or other trading misconduct.

Crafting Your Perfect Policy

Work with Specialists

Even if your particular industry didn't make it into this article, the main takeaway here is that industries do have specific risks inherent to them. Not only do you need to know about them, but you need to work with an insurance specialist who can take it all into account.

Our team at Janover has more experience than most, and we'll work tirelessly to find you the right policy for your SPAC's specific needs. Easily get a free quote for everything you need.

Tailored Endorsements

Don't be afraid to ask for industry-specific endorsements to your D&O policy. Insurers can often customize coverage to address unique risks in your target industry.

Regular Reviews

As your SPAC moves through the search and merger process, regularly review your D&O coverage. The risk landscape can drastically shift as you zero in on a specific target or industry, so yesterday's policy might not be quite enough for today's risk factors.

The Bottom Line

Your SPAC's D&O insurance isn't one-size-fits-all. You strongly need to consider tailoring your coverage to get the level of protection you need. Remember, in the SPAC world, being prepared isn't just about finding the right target company — it's about having the right insurance when you need it most, too.