The recent decision in Britt v. Twin City Fire Insurance Co., C.A. No. 8SACV 12-1355-JST (JPRx), slip op. (C.D. Cal. June 26, 2013), highlights important insurance considerations for private equity funds and the individuals they place as directors or officers at portfolio companies. This commentary analyzes this decision and discusses its importance. The decision demonstrates potential gaps in coverage that can arise when a private equity firm relies solely on the insurance coverage purchased by its portfolio companies to protect the private equity firm and the individuals it places as directors or officers from lawsuits alleging various kinds of misconduct.
The decision demonstrates that a portfolio company’s insurance may not extend to all of the alleged conduct of the private equity firm and its personnel. Private equity firms can benefit from ensuring that they have their own insurance protecting them and the individuals they place at portfolio companies. At the very least, they should understand the scope and limitations of any coverage provided by insurance purchased by the portfolio companies. This commentary fosters such an understanding.
Michael T. Sharkey is a partner in the insurance coverage practice of Perkins Coie LLP, where he represents policyholders in insurance coverage disputes nationwide. He also counsels policyholders on the insurance implications of various transactions and agreements. The opinions expressed in this article are those of the author and not necessarily those of any of his clients. He can be reached at MSharkey@PerkinsCoie.com.
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