SPACs Return: Why D&O Risk Management Must Step Up

SPACs Return: Why D&O Risk Management Must Step Up
September 4, 2025 8 mins

SPACs Return: Why D&O Risk Management Must Step Up

SPACs Return Why DO Risk Management Must Step Up

SPACs are staging a comeback, but the risks that surrounded them in prior cycles remain. The challenge is to lead with proactive, strategic risk transfer that keeps stakeholders and balance sheets protected in a fast-evolving landscape.

Key Takeaways
  1. A SPAC is an investment vehicle that raises capital via an IPO, to then acquire a private company via a deSPAC transaction. SPACs are back, with 81 SPAC IPOs raising $16.1 billion in the first eight months of 2025.
  2. The deSPAC process can provide a go-public alternative to traditional IPOs, but carries risks, including shareholder litigation against entities and directors and officers D&Os involved in the process.
  3. Given the risks, SPACs, SPAC sponsors, target companies and the go-forward company after a deSPAC transaction should all make D&O coverage a priority.

Special Purpose Acquisition Companies (SPACs), largely dormant since 2022, have revived amid the new U.S. administration, under which a potentially more business-friendly Securities and Exchange Commission (SEC) and tariff uncertainties have caused companies to reconsider IPO plans. 

Despite the reemergence of SPAC activity, core litigation risks persist. Directors and officers (D&O) insurance coverage is therefore essential for businesses going public via a SPAC IPO. 

Litigation: The Persistent Shadow Over SPAC Evolution

SPACs flourished in 2021, raising more than $160 billion in capital. However, many post-deSPAC companies underperformed. In fact, by late 2023 more than 20 SPAC-backed firms had filed for bankruptcy, evaporating approximately $46 billion in equity value.1 

The SPAC boom and bust prompted the SEC to pass new rules imposing heightened disclosure and procedural requirements applicable to SPAC IPOs and deSPAC transactions. It also encouraged a wave of shareholder and government enforcement in D&O actions. 

The first eight months of 2025 saw 81 SPAC IPO filings in the U.S., raising $16.1 billion — up from just $1.8 billion in 2024.2 This year, SPACs have also accounted for approximately 60% of all IPO volume and 40% of total proceeds.3 

Recurring issues, however, like regulatory uncertainty, complex deSPAC litigation and headline-making bankruptcies, remain significant obstacles for deals.

“SPACs are generally viewed as an easier and cheaper way for a company to go public,” says Adam Furmansky, D&O Product Leader – East for Aon’s Financial Services Group in the United States. “But, they’re not simply a shortcut to public capital. SPACs are financial vehicles operating under a spotlight — each step in the process is now more likely to be scrutinized by the market, and if that scrutiny does not pass muster, tested in the courts.”

What’s Driving SPAC and DeSPAC Litigation Concerns?

SPAC litigation typically falls into three categories:

  1. SPAC IPO litigation (currently uncommon)
  2. Litigation challenging the deSPAC transaction
  3. Post-deSPAC litigation, similar to traditional securities class action stock drop litigation, with claims of inadequate or inaccurate disclosure, or underperformance

The second and third types are the most common. In addition to underlying litigation, coverage disputes regarding deSPAC transactions are a potential challenge, with post-transaction claims being particularly complex. Most post-transaction litigation is filed in federal court and comes with significant defense costs or sizable settlement amounts that may be in the tens of millions of dollars or higher.  

Quote icon

Some of the most expensive private company D&O claims have come from failed deSPAC opportunities. For boards, it is always best practice to benchmark policy limits and tailor coverage for D&O risks associated with deSPAC transactions.

Conor Cassin
Senior Vice President, Financial Services Group, U.S.

The SEC’s evolving stance on SPACs and investor protections is drawing the attention of the plaintiffs’ lawyers and raising concern for D&O underwriters. 

“When stricter SEC rules for SPACs and deSPAC transactions were finalized, we thought we’d never see SPACs again,” says Nick Reider, D&O Product Leader – West, for Aon’s Financial Services Group in the United States. “Because SPAC and deSPAC activity had largely dried up by the time the SEC’s new rules became final in January 2024, they may not have been tested in litigation or enforced by the SEC. So, there is some uncertainty around how the rules will be applied. That is in addition to the uncertainty we have seen in SPAC-related D&O litigation, where, in some instances, carriers paid limits they didn’t expect to pay. Those past litigation results are still on insurers’ minds.” 

Navigating the Path to Public: Listing Options, Regulatory Challenges, and Insurance Essentials Webinar

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Navigating the Path to Public: Listing Options, Regulatory Challenges, and Insurance Essentials Webinar

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D&O Insurance is Necessary to Mitigate SPAC and DeSPAC Litigation 

While D&O coverage for SPAC-related litigation is similar to that for traditional IPOs, it can be more complex for several reasons. Most notably, this includes the numerous deal participants — and insurance programs — potentially involved. This amplifies the need to understand the private and public coverage nuances for all parties throughout the process. When approaching D&O markets for SPACs versus deSPACs, different considerations apply. 

For a SPAC, D&O underwriters focus on potential conflicts of interest between SPAC sponsors and public shareholders, terms concerning warrants for additional shares, management and board experience, target search details and the expertise needed for acquisition decisions.  

For a go-forward post-deSPAC company, D&O underwriters focus on the same types of considerations as they do when underwriting other public companies, including board and management qualifications, internal controls and disclosures, and path to profitability. 

The key nuances arise when a SPAC is about to conduct a de-SPAC transaction. The insureds and insurers must both consider how the coverage will be structured so that (1) the SPAC, target company, and post-deSPAC go-forward company, along with their respective D&Os, are covered, and (2) coverage exists for both pre- and post-deSPAC matters. To address these nuances, various D&O programs should be considered, depending on the transaction:

  • Multiple D&O policies may be needed to address post-transaction litigation, including a policy for the new public company, and potentially runoff coverage for the pre-deSPAC deal participants. As an alternative to purchasing multiple D&O policies, some insurers will provide coverage for the pre- and post-transaction deal participants within a single “packaged” policy, dubbed a SPACkage. Regardless of the approach ultimately taken, ensuring no coverage gaps is essential in this complex environment.
  • Straddle coverage ensures claims involving both pre- and post-transaction acts are properly covered. It clarifies that if a claim straddles the deSPAC transaction because it arises out of matters preceding and following a transaction, coverage is provided across all relevant insurance policies or subsumed within one policy — rather than excluded outright.4

Why Properly Structuring a D&O Policy is Essential for Private Equity Portfolio Companies 

A D&O policy protects portfolio companies, their leadership and potentially investment firms, from both direct and indirect risks. Properly structuring a D&O policy is especially useful for private equity portfolio companies that may deSPAC as a public exit option. Evaluating their insurance coverage to address boilerplate exclusions that impact new risks and liabilities leading up to being a publicly traded entity is important. 

Broadly crafted exclusionary language can prove problematic for insureds. It’s therefore important that such language is carefully reviewed and appropriately tailored where applicable. In addition to portfolio company D&O insurance, a private equity firm’s insurance should also be reviewed to properly dovetail any applicable coverage with the underlying SPAC, SPAC sponsor, target and deSPAC insurance programs. 

Too many commentaries stop at operational checklists. To truly mitigate risk and preserve deal value, companies should:

  • Anticipate Regulatory Shifts: Today’s SEC is signaling business-friendly intent, but enforcement unpredictability persists. Scenario planning, not reactive coverage, should be the norm.
  • Prioritize Coverage Customization: Off-the-shelf D&O no longer suffices. Work with partners who understand transactional nuances and can actively negotiate bespoke policy terms that align with commercial objectives, not just regulatory minimums.
  • Integrate Risk Transfer Early: The best outcomes arise when risk, legal and deal teams collaborate from the start — ensuring D&O strategy is embedded in SPAC planning, not appended post-fact.

81

SPAC filings in U.S. through first eight months of 2025.

Source: SPAC Analytics

Recommendations for Forward-Thinking Leaders

If you’re ready to elevate your SPAC risk strategy, contact us to discuss tailored, actionable approaches for protecting your leadership and organization.

1 Why are SPACs suddenly hot again and should investors buy into the hype? Invezz 
2 SPAC Analytics
3 SPACs Are Back, What You Need To Know, Scarinci and Hollenbeck 
4 Guest Post: Mind the (SPAC) Gap, The D&O Diary 

Aon’s Thought Leaders
  • Conor Cassin
    Senior Vice President, Financial Services Group, U.S.
  • Adam Furmansky
    D&O Product Leader -- East, Financial Services Group, U.S.
  • Nick Reider
    D&O Product Leader -- West, Financial Services Group, U.S.

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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