Private Equity Insurance for Science & Technology Sector
In spite of the recent increase in private equity activity, the sector remains a mystery to many insurance professionals. Professional business exposures tend to be “pigeon-holed” into the Professional Indemnity, Directors’ & Officers’ and Financial Institution insurance markets, whereas the activities of private equity professionals cut across these artificial lines of demarcation and require individual and careful consideration.
This is where MFL can help. With our specialist knowledge of Private Equity & Venture Capital professional and managerial liability exposures and our experience of handling the insurances of a wide range of clients in the sector, we are perfectly placed to advise you on your commercial insurance needs and requirements.
Private equity and venture capital investments involve a number of professional disciplines, all of which may be vulnerable to claims for professional negligence in the event of financial loss:
Investors in a private equity fund will often rely on an Information Memorandum as the basis of their decision to invest. If the information in the IM is held to be misleading or inaccurate, claims may be made against those responsible for its content. Claims may also arise against the investment managers if an investment has been made outside the stated parameters in the IM and has subsequently performed poorly.
Claims for professional negligence may be made for mismanagement of the fund, including inadequate due diligence of potential investment targets and inappropriate or unsuitable investment recommendations or decisions made by the Advisory Committee or Fund Manager.
Claims may arise further down the line from disputes regarding the valuation of investee companies, exit strategies or potential conflicts of interest on sale.
Corporate Governance Exposures
Personal liabilities for managerial/trustee responsibilities may also be incurred by the directors and officers of the private equity advisers, managers and administrators either in their primary roles for their private equity/venture capital firms or in their roles as directors of fund entities, or investee/portfolio companies:
Liability for breach of fiduciary duty in their role as directors and officers, including responsibility for “wrongful trading”, company mismanagement or claims by creditors for the debts of the company in the event of insolvency.
Allegedly negligent advice provided to the management team of portfolio companies (such claims are often based on both professional and managerial liability).
Individual responsibility for the content of an IM, including the documentation prepared for the purposes of an exit via an Initial Public Offering (IPO).
Personal liabilities arising from claims for breach of trust against trustees of funds established on such a basis.
Crime & Financial Exposures
The management and administration of private equity investments also carries with it exposure to potential fraudulent activity, either by the parties involved in the process or by external fraud, particularly through computer systems and the internet. In addition, cyber activity can give rise to exposure to third party liability to others as well as significant costs arising from interruptions to businesses.