Insurance Coverage Law Center Publishes Akin Gump Article on D&O Insurance “Capacity” Exclusion

Insurance Coverage Law Center’s “Eye on the Experts” column has published “Goggin and the D&O Insurance ‘Capacity’ Exclusion: A Potential Coverage Gap for Private Equity and Other Investor-Designated Directors,” an article written by Akin Gump litigation partner Mitchell Hurley and counsel Clayton Matheson. The article discusses a recent Delaware court ruling that the “capacity” exclusion of a typical directors and officers policy may preclude coverage for acts that a director-designee takes in anything but his or her exclusive capacity as the insured company’s board member and fiduciary.

Hurley and Matheson write that the case highlights “how critical the capacity exclusion can be.” Investing sponsors, they say, “need to be aware of the exclusion and should proactively work with their portfolio companies, and the companies’ insurers and brokers, to close the potential coverage gap.”

The case makes clear, the authors write, that the capacity exclusion can “pose serious risks to portfolio company board members designated by hedge funds or other private equity sponsors.” Any potential coverage gap, however, can be closed, they say, “with light revisions to the policy wording, or through negotiation of a custom endorsement. Investing sponsors should keep these fixes in mind when negotiating with prospective portfolio companies.”

To read the article in its entirety, please click here.