Directors and officers have a lot to consider when it comes to preparing for an IPO. One important task is to purchase an appropriate amount of directors and officers liability insurance, coverage that will be more expensive, complicated—and potentially necessary—compared to the D&O insurance their private company needed.
Woodruff Sawyer’s annual IPO Track: Your Guide to Directors and Officers Insurance for IPOs walks you through each step of coordinating your D&O risk management with your IPO.
With this guide, private companies looking to do an IPO will learn about the five critical steps necessary to coordinate D&O insurance with going public. The steps are complex, and it is important that private companies get the timing right.
While IPOs are inherently very exciting, the litigation landscape for IPO companies is unfriendly. IPO companies whose stock prices drop below the offering price are likely to have their shareholders sue them (and their directors and officers) in securities class action law suits. These suits allege that there were material misstatements and omissions in the IPO registration statement filed with the Securities and Exchange Commission.
Worse still, when new IPO companies are sued they are likely to be sued in multiple jurisdictions, including both federal and state courts. This is the consequence of a 2018 Supreme Court decision, Cyan v. Beaver County Employees Retirement Fund.
Plaintiff law firms have been quick to capitalize on the Supreme Court’s ruling, which in turn has driven up the cost of D&O insurance compared to the cost for mature public companies.
Given the heightened risks facing IPO companies, the high cost of D&O insurance for IPO companies, the quickly changing nature of the D&O insurance market, and the numerous opportunities for missteps, there is a lot of pressure on choosing the right insurance brokerage. Of course you will want to hire an insurance broker that works with numerous public companies, but that alone will not optimize your outcome. In order to get the best D&O insurance coverage at the best possible price, it is also critical that your specific insurance broker has extensive current experience working with IPO companies.
Woodruff Sawyer is a national leader when it comes to D&O insurance for IPO companies. You can start to learn about the critical issues by downloading our Guide to D&O Insurance for your IPO.