The last year has seen a resurgence of special purpose acquisition companies or “SPACs.” Whether this SPAC comeback will persist remains to be seen. But sponsors, targets, investors, and other market participants should take heed of significant directors and officers liability insurance rulings arising from the SPAC heyday of the early 2020s that have now made their way through the courts and provide useful guidance to those looking to place and rely upon effective D&O insurance solutions.
One such recent Delaware coverage decision—View Operating v. Starstone, No. N25C-08-064 SKR CCLD, 2026 WL 895939 (Del. Super. Ct. Mar. 30, 2026)—rejected a D&O insurer’s denial of coverage under a “public offering” exclusion, concluding that it did not bar coverage for claims arising from the de-SPAC merger transaction. The court also determined that the insurer had to fund a former officer’s defense, even if they had not advanced those costs, and that the insurer’s “nebulous” and shifting positions created a trial issue of fact on the policyholder’s bad faith claim.
Background
A technology company that developed smart windows entered into a de-SPAC merger agreement with a SPAC. Under the agreement, the private operating company became a wholly-owned subsidiary of the SPAC at closing.
After the transaction closed, an audit committee investigation prompted an SEC investigation and several follow-on litigations, including a securities class action, a shareholder derivative litigation alleging misrepresentations and governance issues in connection with the merger process, and an SEC civil action against an officer for allegedly misstating the target company’s liabilities during the transaction.
The policyholder sought coverage under its D&O program from five insurers for defending and settling these actions. Only one denied coverage. That excess insurer denied coverage under a “public offering” exclusion, which barred coverage for any claims “alleging, based upon, arising out of, or attributable to any public offering of equity securities of the Company.”
In the ensuing Delaware coverage action, the policyholder argued that the exclusion could not be triggered because it applied only to equity securities of a specific corporate entity (i.e., the target company), which never had a public offering of shares. Focusing on what it called the “economic reality” of the transaction, the insurer countered that a post-merger sale of shares at the parent level was the functional equivalent of a public offering by the target company itself.
The Delaware Court Affirms Coverage
The court rejected the insurer’s unsupported expansion of the public offering exclusion. The court explained that the exclusion applied only if there was a (i) “public offering,” (ii) of “equity securities,” (iii) of the de-SPACed company. The key terms “public offering” and “equity securities” were not defined, so the court looked to their ordinary meaning in dictionaries, which showed that the exclusion covered only “a sale of ownership rights” in the de-SPAC target (as a corporate entity) that is made to the general public.
The de-SPAC target did not conduct a public offering of its equity securities. All registration and issuance of securities were through a different entity, which resulted in the de-SPACed entity cancelling its shares and having its options/warrants assumed by the parent.
The court did not accept the insurer’s “substance over form” argument because it “blurred” the legal distinctions between entities, which fell far short of the insurer’s burden and would “undermine the narrow function of insurance exclusions.” And because the insurer did not refute the exclusion’s plain language, the court declined to assess the insurer’s “bevy” of counterarguments based on the parties’ intent, the deal specifics, or the SEC’s interpretive guidance on de-SPAC transactions. At best, the insurer’s view created ambiguity, which favored coverage.
The insurer had also argued that the policyholder could not access the D&O policy proceeds until it established “actual payment” of invoices incurred on behalf of the former officer embroiled in the de-SPAC claims. Not so, the court explained, because the policy’s requirement that the company “has indemnified” the former officer required only a “promise” to reimburse those losses, not actual payment. The insurer’s view was overly narrow and inconsistent with existing Delaware law declining to enforce payment requirements under similar policy language.
The court also declined to dismiss the policyholder’s bad faith claim, concluding that the insurer’s coverage arguments were “too nebulous” to be deemed colorable as a matter of law. As one example, the insurer had conceded at oral argument that its interpretation of the public offering exclusion did not rely on any specific case, instead leaning on SEC guidance published years after the policy was issued. The insurer’s legal positions were also “inconsistent,” shifting over the course of the coverage litigation. Given “the high standard of conduct expected of insurers,” the court explained, the bad faith claim would proceed to trial.
D&O Insurance Considerations for SPAC Transactions
This decision highlights several D&O coverage issues policyholders should be aware of given the recent resurgence of SPACs.
First, the pro-coverage decision is not an outlier in Delaware, which has previously upheld broad D&O coverage for directors and officers in SPACs and other M&A-related claims. The latest policyholder win is part of a growing body of notable, policyholder-friendly decisions in Delaware on important D&O issues.
Second, Delaware courts continue to hold insurers to the extremely high burden of establishing that exclusions are specific, clear, plain, conspicuous, and not contrary to public policy. Here, the policy’s “public offering” exclusion required a specific showing of a sale by the de-SPAC target of its equity securities to the general public, and the insurer’s “substance over form” argument failed by blurring the lines between entities.
Third, notwithstanding the difficulty insurers may face in disclaiming based on an exclusion, the fact that a D&O insurer advanced the “public offering” and actual-payment arguments at all is a reminder to carefully structure D&O programs to maximize coverage for all relevant entities and management across the SPAC transaction life cycle.
For example, many times a target’s legacy private D&O policies may not account properly for the company’s transactional plans and corresponding exposures. Issues like extended reporting periods, prior acts coverage, traditional and transaction-specific exclusions, and Side A versus Side ABC protections can all have material impacts on coverage if not properly accounted for.
While the court here provided a backstop to ensure the policyholder received the benefits of its D&O policy, policyholders should not bank on similarly favorable outcomes in litigation. Considering D&O insurance protections early and often can help maintain continuous coverage, avoid unexcepted gaps, and minimize surprise denials at the point of claim.
