One of the main types of insurance private equity houses will look at is that covering management liability, typically covered by directors and officers’ insurance (D&O). D&O covers any individuals with a board seat on any of their portfolio companies. As board members, these individuals’ fiduciary duty is to act in the best interests of the company. A common issue is one in which someone questions whether a private equity house representative has made a decision that benefits the private equity firm rather than the portfolio company. D&O also covers other liabilities associated with being a company director, such as an instance in which board members are sued in the event of an environmental problem.
Professional liability (PI) insurance is another standard product for private equity. It insures professionals in a firm against potential litigation surrounding investment decisions, for example. It would cover claims against a firm or individuals in a firm for action from limited partners, syndicate partners, banks and other institutions lending to portfolio companies, minority shareholders of portfolio companies, management teams and buyers of an investee company.
