Navigate the SPAC lifecycle: A strategic framework for risk management and insurance

Special Purpose Acquisition Companies (SPACs), often referred to as “blank-check companies,” have re-emerged as a popular alternative to traditional IPOs. SPACs surged in popularity during 2020–21, prompting new market practices, litigation and evolving insurance solutions (notably D&O coverages).

This report aims to provide a comprehensive framework for stakeholders evaluating SPAC involvement, with a focus on insurance risk management.

Specifically, we'll examine:

• Insurance solutions (Sponsors, Boards and post-deal Targets)
• Common claims and real-world trends
• Placement process working with WTW

Insurance solutions (sponsors, boards and post-deal targets)

Insurance for SPACs

Insurance plays a central role in two phases: initial IPO (includes SPAC operations and sponsor protection) and during/after the de-SPAC (target protection and post-closing exposures). SPAC executives face unique risks, including personal liability, as SPAC trusts often can't indemnify them. Directors & Officers (D&O) insurance is therefore essential and must be structured with tailored coverage periods that align with the SPAC’s lifecycle, including formation, IPO, merger and post-merger phases.

Directors and Officers (D&O) insurance

D&O insurance protects directors and officers (including those appointed by the Sponsor, but not the Sponsor itself) against claims alleging mismanagement, misleading disclosures, or breaches of fiduciary duty related to the SPAC lifecycle, including pre-merger solicitation and proxy statements.

Insurance is one of the most critical, and often misunderstood, elements of SPAC risk management. The insurance is meant to protect directors and officers from lawsuits alleging mismanagement, breach of fiduciary duty, misleading disclosures, or violations of securities laws during the SPAC’s formation and IPO.

Because SPACs are born public and undertake complex securities transactions within compressed timelines, they face heightened exposure to litigation, regulatory scrutiny and post-merger liabilities. Insurance coverage must therefore be tailored to cover three distinct stages of the SPAC lifecycle:

1. 01

   Formation and IPO phase

   Directors and Officers (D&O) insurance is essential for protecting SPAC leadership against allegations of mismanagement, breaches of fiduciary duty, misleading disclosures, or violations of securities laws during the SPAC’s formation and IPO process.

   To ensure robust protection, the coverage should feature broad definitions of both insured individuals and insured entities, along with insuring agreements that explicitly encompass securities related claims and potential regulatory investigations. This foundational layer of protection helps safeguard the SPAC’s executives as they navigate the heightened scrutiny and legal exposures inherent in taking a company public through a SPAC structure.

2. 02

   Business combination (de-SPAC) phase

   Following a de-SPAC transaction, former directors of the combined company may face claims that arise well after the deal closes, making it essential to negotiate tail extension terms in advance to avoid a significant premium increase at the time of the transaction. This stage presents one of the most complex risk profiles, as it requires integrating the exposures of a public shell with those of a private operating company, often necessitating a restructuring of the overall D&O program to properly protect both entities.

   To ensure adequate protection, tail (runoff) coverage should be secured for at least six years to align with the statute of limitations for most securities related claims. Sponsors may also benefit from purchasing Side A DIC coverage to safeguard individual directors in the event of corporate insolvency.

   Note, in certain situations, SPACs and their sponsors may instead opt for a combined “deSPACkage” program, which provides protection for both the SPAC’s precombination liabilities and the goforward public company under a unified structure. This alternative should be evaluated on a case-by-case basis, considering the parties involved in the business combination and the indemnification requirements set out in the transaction agreement.

3. 03

   Post-closing phase (public operating company)

   In the postclosing phase, once the de-SPAC transaction is complete and the company becomes a publicly operating entity, the D&O structure typically involves maintaining two distinct insurance towers unless a consolidated program is purchased. The legacy SPAC tower is placed into runoff at closing to protect against claims arising from premerger acts, while a new D&O program (often referred to as the NewCo tower) is incepted at the transaction close to insure the ongoing operations of the combined company. A run-off program for the private company isn't required to be placed so long as the insurer agrees to provide prior acts coverage in relation to such company.

   Because newly public de-SPAC companies frequently experience early stock price volatility and may face securities class actions alleging premerger disclosure issues, close coordination between the SPAC’s runoff coverage and the NewCo program is essential to avoid gaps or overlaps in protection. The NewCo policy should also be carefully benchmarked against traditional IPO placements, with particular focus on retentions, exclusions and the robustness of Side A protection to ensure that the leadership team is adequately safeguarded as the company transitions into the public markets.

Common claims and real-world trends

The SEC has repeatedly commented on SPAC practices (including disclosures, forward-looking statements and sponsor conflicts of interest). In the wake of the SPAC boom, regulatory guidance and comment letters centered on enhanced scrutiny of prospectus/proxy disclosures, the treatment of projections and sponsor agreements. Public companies formed by SPACs must meet the same SEC reporting obligations post-close as any IPO company. The SEC introduced rules requiring enhanced disclosures on sponsor compensation, conflicts of interest and projections. These regulatory measures are designed to protect investors, ensure market integrity, and increase transparency in SPAC transactions, particularly given the compressed timelines and incentives involved.

Common claim scenarios

• Securities class actions (misstatements/omissions): Allegations that proxy/registration statements, projections, or disclosures were materially false or misleading (such as misrepresenting revenue streams, customer contracts, or long-term growth prospects). These often arise shortly after a merger, when the stock price falls.
  • Numerous de-SPAC transactions have triggered securities class actions, particularly where post-merger performance failed to meet optimistic projections. For example, allegations that a SPAC failed to disclose critical risks to its business model, led to a significant stock drop and litigation. This highlights the real exposure for sponsors and target management teams.
• Breach of fiduciary duty and unfair process: Claims by shareholders that sponsor/directors prioritized sponsor promote or other interests over shareholder value in negotiating the business combination. These claims often focus on whether the board conducted a robust and independent evaluation of the target company.
  • Delaware courts have seen a rise in litigation challenging the fairness of SPAC deal processes, with particular attention paid to the timing of disclosures, the independence of board members, and whether directors adequately considered shareholder interests versus sponsor incentives.
• Breach of merger agreement and contract claims: Disputes about earnouts, purchase price adjustments, or post-closing indemnities.
  • These claims may also involve disagreements over representations and warranties made during the transaction, especially when post-close performance diverges from expectations.
• Derivative suits: Shareholders bring derivative claims against officers/directors for alleged mismanagement.
  • These suits often allege that directors failed to conduct proper due diligence or acted in bad faith during the merger process, causing the SPAC to overpay for the target. Derivative settlements can often involve payments of money directly to the company. As such, payments generally can't be indemnified and adequate insurance coverage becomes essential.
• Proxy solicitation and SEC disclosure issues: SEC comment letters and enforcement have targeted SPAC disclosures, projections and sponsor arrangements when disclosures were deemed incomplete.
  • Enforcement actions have emphasized the need for clear, balanced presentation of financial forecasts and full disclosure of any conflicts of interest, including side agreements or PIPE arrangements.

Not all claim types highlighted here will be covered under every policy, and actual coverage depends on the specific terms, conditions and structure of your insurance program. Partnering with a broker such as WTW is essential to evaluate your risks and help design coverage that best protects your organization.

Placement process with WTW

Working with WTW provides SPAC sponsors with the scale, expertise and market leverage needed to efficiently secure insurance solutions that align with the risks of a SPAC transaction. WTW’s specialized teams bring deep experience navigating the nuances of coverage for directors and officers, litigation exposure and post-closing risk transfer, areas where precision and foresight are critical. Our strong carrier relationships help ensure access to competitive terms and tailored structures, even in challenging market conditions. For Sponsors seeking a smooth, informed and strategically optimized insurance placement, partnering with a global brokerage backed by dedicated experts is the most reliable path to both protection and value creation.

Throughout the lifecycle of a SPAC, WTW provides sponsors with comprehensive insurance advisory and placement support designed to address evolving risk profiles at each stage.

At the outset of the public offering, WTW reviews the SPAC’s SEC-filed registration statement, conducts detailed benchmarking and assesses contemplated exposures to structure and place Directors & Officers (D&O) liability coverage that aligns with market conditions and investor expectations.

Once the SPAC becomes an active public vehicle and identifies a potential target, WTW assists with due diligence by performing a full review of the target’s existing insurance program, key operational exposures and the adequacy of its current risk transfer mechanisms. This evaluation culminates in a detailed diligence report outlining post-close insurance needs and projected costs.

As the SPAC approaches an acquisition or, alternatively, a dissolution, WTW negotiates and structures coverage for the acquired entity, ensures proper coordination between runoff and goforward policies, and manages the placement of the SPAC’s own runoff program to address liabilities arising during the diligence period and before a business combination, even in the event the SPAC ultimately liquidates. This end-to-end support provides sponsors with clarity, continuity and robust risk protection at every critical milestone.

• Execute NDAs and begin D&O placement process, establishing parameters for coverage including appropriate limits, breadth of coverage and entities to be insured
• Based on the SPAC’s profile, WTW identifies the carriers most likely to participate on a potential program and begins preliminary negotiations
• Host underwriting meeting with the SPAC leadership team with participation from key SPAC D&O markets
• Following underwriting meeting, establish primary terms with carriers
• Present primary marketing results and select lead D&O carrier. Secure excess capacity over primary terms
• Policy negotiations finalized
• SPAC authorizes WTW to bind coverage with insurers; WTW provides confirmation upon listing

Stay informed on the latest trends and practices

SPACs are a flexible capital formation vehicle that can accelerate a private company’s path to public markets, but they carry unique legal, disclosure, sponsor-incentive and insurance challenges. The post-2020 SPAC boom demonstrated both the benefits (speed, access) and hazards (litigation, regulatory scrutiny, performance volatility) with SPAC transactions. Stakeholders must approach SPACs with a clear understanding of their structure, insurance needs and potential liabilities. For sponsors and targets, sound due diligence, conservative disclosures, targeted insurance placements (D&O plus representations and warranties insurance) and alignment of sponsor economics are essential to manage risk and improve the odds of a favorable outcome. WTW is here to assist in all facets of the SPAC placement and lifecycle.