Markets/Coverages: New Marsh D&O Enhancement for Clients’ IPO Pursuit

Marsh announced new investment bank indemnification coverage to its directors and officers liability (D&O) insurance offering for clients pursuing initial public offerings (IPOs).

The coverage enhancement comes amid growing client demand for more comprehensive D&O protection during the IPO process, which can draw increased scrutiny from regulators and shareholders and add significant exposure to the company, its directors, officers, and those assisting them through the process.

While standard D&O insurance policies protect the company and its directors and officers from the costs associated with shareholder lawsuits, the coverage does not extend to investment banks, which prepare the companies’ prospectuses and facilitate the issuance and sale of their shares to the public. Instead, IPO companies agree to indemnify the banks against certain legal claims that may arise post-IPO.

Marsh’s data shows that investment banks are named as additional defendants in about 20% of all IPO-related shareholder class action lawsuits filed each year and nearly all lawsuits alleging a material misstatement or omission in the prospectus or registration statement. This leaves IPO companies potentially exposed to significant financial risk.

To address this critical gap, Marsh collaborated with D&O insurers to develop a tailored policy enhancement to clients’ traditional D&O programs that specifically covers their indemnification obligations to investment banks.

“The journey from private to public company is fraught with significant exposure, including the potential financial exposure from indemnification obligations to investment banks, which can cost IPO companies millions of dollars out of pocket,” said Andy Matthews, a vice president in Marsh’s FINPRO Practice.

Source: Marsh