Even though SPACs will raise money from their IPO to acquire another business, the new entity still faces many risks associated with traditional public entities. You need to remember that the environment in which these companies are operating is in perpetual flux. The shift continues from regulatory enforcement trends to compliance issues.
The distinct landscape is what changes the risk for these public company directors and those working for them. That's why it is so important that SPACs have robust Special Purpose Acquisition Company insurance coverage. It is also why D&O insurance is available in three parts.
Part 1
In the event that directors are personally sued or are forced to pay at least the defense costs in addition to a portion of the settlement, that's when the D&O insurance will kick in. The goal is to protect the director. Though Part 1 will only cover individual directors if the entity isn't capable of covering it, like if the company is at present insolvent.
Part 2
When a business indemnifies people in a lawsuit, that's when Part 2 coverage will kick in to cover the costs. However, it will only cover the indemnifying individuals insured and named in the lawsuit.
Part 3
The third part is more about balance sheet protection for a company if the business is named in the lawsuit along with the director. The coverage will reimburse the costs.