Berkley Select’s Tailored Solutions for Biotech, Technology, and Private Equity-Backed Firms
Private equity (PE) and venture capital (VC) firms are increasingly requiring Directors and Officers (D&O) insurance as a condition of investment, particularly in high-risk, high-reward industries like biotechnology and technology.
To understand how Berkley Select meets these unique demands, one of our Senior Underwriters, Kyle Hudson, shares how Berkley Select’s specialized D&O offerings address the challenges faced by private companies while aligning with investor expectations. Kyle underwrites Management Liability Private Company commercial insurance lines and has been with Berkley Select since 2021.
Kyle, can you explain Why PE and VC Firms are Mandating D&O Insurance?
Heightened demand for D&O insurance currently stems from the evolving risk landscape in PE and VC Firms. “Private equity and venture capital firms are placing their capital—and their reputations—on the line with each investment,” Kyle said. “They want assurances that the companies they invest in have adequate safeguards in place to protect leadership and the business itself from potential lawsuits or disputes.”
Some key factors driving this trend include:
1. Increased Litigation Risk: With greater scrutiny from regulators and stakeholders, private companies face rising claims involving fiduciary duties, financial mismanagement, and regulatory compliance.
2. Investor Accountability: PE and VC firms often appoint directors to portfolio companies’ boards, exposing themselves to potential litigation risks if disputes arise.
3. Exit Strategies: D&O insurance is particularly critical when planning for IPOs or M&A transactions, where risks of shareholder litigation can be significant.
The Role of D&O Insurance in Investment Deals
Kyle highlights that D&O insurance is increasingly viewed as a precondition for investment. “We’re seeing PE and VC firms make D&O coverage a standard part of their term sheets,” he says. “They recognize that it’s not just about protecting the company’s leadership—it’s also about ensuring the sustainability and growth of their investment.”
This shift is particularly evident in industries like technology and biotech, where rapid growth and regulatory uncertainty heighten exposure.
Berkley Select’s D&O Coverage Overview
Berkley Select offers comprehensive and customizable D&O insurance designed to meet the needs of private companies of all sizes, with a focus on high-growth industries like biotech and technology.
Coverage Highlights Include
• Policy Limits: Up to $5 million in coverage, both on a primary and excess basis.
• Flexible Retentions: Retentions often start as low as $5,000, making policies accessible to startups and mid-sized companies, while higher retentions cater to more established businesses.
• Side-A Coverage: $1 million in base form coverage dedicated protection for individual directors and officers when indemnification from the company is unavailable.
• Entity Coverage: Protection extends to the company itself for specified securities claims and other covered liabilities.
• Optional Enhancements: Coverage can include employment practices liability (EPL), and fiduciary liability for comprehensive risk management.
• Standalone Run-off: Coverage can be written at the point a transaction takes place for potential unknown matters occurring prior to the transaction.
“Berkley Select designs these policies to adapt to the unique risks of our clients, especially in sectors like biotech and technology where innovation and uncertainty often intersect,” said Kyle.
Biotech and Technology Industry Focus
Niche industries such as biotech and technology sectors face heightened scrutiny from regulators, investors, and even the public,” Kyle explains.
Some Key Risks Include:
Regulatory Scrutiny
Both biotech and technology sectors operate in highly regulated environments. From FDA oversight in biotech to data privacy and cybersecurity laws in tech, these companies face significant exposure to claims arising from noncompliance.
• Risk: Regulatory investigations or shareholder lawsuits linked to a company’s failure to comply with FDA requirements for reporting adverse events during the trials.
• Solution: Berkley Select provides coverage for defense costs related to regulatory investigations and securities claims, ensuring leadership can focus on steering the company.
Mergers, Acquisitions, and Exit Strategies
As biotech and technology firms approach market readiness, they become prime candidates for mergers, acquisitions, or outright purchases by larger entities. These transactions often bring heightened risk of shareholder litigation, particularly around valuation disputes or allegations of unfair processes.
• Risk: Class action lawsuits alleging breaches of fiduciary duty in the M&A process.
• Solution: Berkley Select’s D&O policies are designed to protect directors, officers, and the company itself during these high-stakes transitions.
High R&D Costs and Burn Rates
Biotech and technology companies often require substantial funding to sustain lengthy R&D cycles. For biotech firms, clinical trials, FDA approvals, and production development can cost millions, creating pressure to meet investor expectations. Tech companies face similar challenges, investing heavily in cutting-edge technologies and advances.
• Risk: Shareholder or investor lawsuits alleging mismanagement of funds or misleading statements about R&D progress.
• Solution: Berkley Select’s D&O policies cover defense costs and settlements stemming from allegations of fiduciary duty breaches, misrepresentation, or failure to meet financial milestones.
Claims in Action
Here are three examples of how Berkley Select’s D&O policies have responded to real world claim scenarios:
• Biotech Regulatory Dispute: A clinical-stage biotechnology research firm working to trial vaccines for COVID was accused by a former employee of violating FDA and other regulations. Berkley Select defended the company and achieved a successful resolution.
• PE-Backed Company: A PE-backed company working to develop novel communication technology for military use was targeted in a class action lawsuit following an acquisition, with investors alleging breach of fiduciary duty. Berkley Select’s tailored policy provided the necessary coverage to defend the board and settle the case efficiently.
• Artificial Intelligence: An AI startup was investigated by the FTC for possible violations of the Unfair Trade Practices Act and concerns that AI would lead to consumer harm. Berkley Select provided defense cost coverage which helped the company mitigate expenditures through the lengthy investigation.
Berkley Select’s Competitive Edge
Berkley Select stands out with its ability to provide the below comprehensive coverage:
• Industry Expertise: Dedicated employees who underwrite our Management Liability lines understand the intricate nuances of the biotech and technology sectors.
• Tailored Solutions: Coverage terms and limits are customized to meet the specific needs of PE and VC-backed companies.
• Responsive Claims Handling: Berkley Select’s in house claims team works closely with insureds to ensure smooth resolution of claims, reducing stress during challenging times.
• Scalable Coverage: From startups to well-established companies, Berkley Select has the capacity to support growth and evolving risks.
Looking Ahead
As the biotech and technology sectors continue to innovate and attract investments, the role of D&O insurance will only grow in importance to this market sector. Kyle concludes, “Berkley Select is committed to being a trusted partner for our brokers who are challenged with providing comprehensive insurance solutions for these types of private companies, helping them navigate their unique risks while meeting investor expectations. It is always rewarding to provide our Management Liability solutions to this innovative sector.”
For more information on Berkley Select’s D&O insurance solutions, contact Kyle Hudson at [email protected] to explore tailored coverage options for your company’s needs. Learn more here: https://www.berkleyselect.com/products/executive-liability/directors-officers-liability
Disclaimer:
Berkley Select is a member company of W. R. Berkley Corporation, a Fortune 500 Company. The views expressed here are those of the author and do not necessarily represent the views of Berkley Select or W. R. Berkley Corporation. Not all products and services are available in every jurisdiction, and the precise coverage afforded by any insurer is subject to the actual terms and conditions of the policies as issued.