Insights

With almost $6 billion raised last year and offerings being explored by a myriad of companies from fintech to blockchain to cannabis companies, the fundraising capabilities and momentum behind ICOs is undeniable. Companies engaged in cryptocurrency offerings however also face considerable challenges. Along with the widespread speculation over the “bursting of the bubble”, there are also considerable taxation and volatility concerns. The turbulent regulatory landscape and recurring cases of fraud however take front and center.

Great opportunities come along in waves. In 1850 it was the gold rush. 1933 brought opportunity at the end of the prohibition. The 1990's the tech boom. Fast forward to today and the marijuana industry is well on its way to becoming the next thriving industry. But, like all companies that are born in the infancy of a new industry, there are significant challenges.

It’s often said that art and film imitate life. While the sexual harassment scandal rocking Hollywood is (sadly) no film, it is shining a light on important employment liability issues that often fly under the radar. While the claims and media storm against Harvey Weinstein may have taken center stage, a look at the list of accused actors and affected organizations reads like a list of invitees to the red carpet. And that growing list shows no signs of slowing. But Hollywood is not the only “bad actor”.

For directors, officers, and professionals alike, nothing is more fear inducing than facing a large lawsuit while being uncertain if your insurance program will respond or not. There are however some steps that can be taken to minimize the likelihood of claim denials. In part 1 (below), we discuss some policy structure considerations.

Placing public company D&O insurance is often a fairly straight forward exercise, assuming the corporation has realistic premium expectations and a risk profile that’s not overly challenging. However when it comes to OTC and micro-cap companies, that risk profile often challenges their expectations. Many companies assume their smaller stature and filing class will yield lower premiums, and while that may be the case sometimes, more often than not, they will find the cards stacked against them from the onset.

There's no denying the momentum behind regulation D and the JOBS Act. But these regulations have also created some confusion when it comes to a company’s directors and officers insurance. Are securities exempt under crowdfunding regulations covered? Is an endorsement required? How does coverage react in the event that the fund raise is successful and we decide to file an IPO? Since D&O insurance policies are a primary source of defense when lawsuits arise, these are all important questions.

To make it more convenient for our followers, you can now receive our alerts, insurance guides and articles as they are released on Feedly, Blogger, or your favorite RSS reader @ www.gbainsurance.com/insights/feed/rss.xml

Purchasing insurance for bodily injury and property damage claims seems straight forward enough - that's the intent of a commercial general liability policy. The problem however, is that many companies today provide some degree of professional services, and most liability policies exclude coverage for claims arising from “professional services”. A typical exclusion will read:

This insurance does not apply to any “bodily injury”, “property damage”, “personal and advertising injury” arising out of the rendering of, or failure to render professional services.

The professional services exclusion is included in a range of policies, from liability policies to umbrella policies and D&O policies. Its purpose is logical but its application flawed. Its intent is to shift professional liability related exposures to an appropriate professional liability policy. Understandable enough.

Originally published for NYU compliance blog with guest author: Dallas Hammer from Zuckerman Law