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Venture Capital Asset
Protection Policy
From in-kind distributions to IPOs and down round financing, the business activities of venture
capital firms and their partners have created a host of unique exposures. Venture
Capital Asset Protection (VCAP) policy offers your venture capital clients a comprehensive
insurance product to assist in transferring and mitigating some of their personal and business risk
from these types of exposures.
Venture Capital Asset Protection (VCAP) policy is a combined product offering
management liability, management indemnification, outside directorship liability and professional
services liability (errors & omissions) insurance in one policy to help eliminate any gaps in your
client’s insurance program. With our combined VCAP policy, venture capital firms receive true
value and one of the broadest policies in the industry.
Introduced in 1997 by our reinsurance partner Chubb, which has continually enhanced its VCAP
policy to keep pace with the changing legal exposures your clients face. As a result of this
experience, we offer you a highly specialized risk transfer solution for your client.
The Venture Capital Asset Protection Policy is highly effective at addressing the needs of many
types of private investment firms, including:
What is included?
The following are automatically included with every VCAP policy:
Insuring clauses:
- Management Liability
- Management Indemnification
- Professional Services Liability
- Outside Directorship Liability
Coverage features:
- Creation of another Private Fund
- Worldwide Scope of Insurance
- Advisory Board Liability
- Insurance for Securities Actions
- Controlling Shareholder Liability
- Estates and Legal Representation
- Spousal Liability Extension
What is protected?
Policy is specifically designed to address those organizational structures typically used by the venture capital industry:
- Limited Partnerships
- General Partnerships
- Limited Liability Partnerships
- Limited Liability Companies
- Stock Corporations
Who is protected?
Our policy offers protection for the firm’s critical contributors, including past, present and future:
- General Partners
- Managing Members
- Directors & Officers
- Employees
- Advisory Board Members
Customized Insurance Protection
It covers activities of fund management firms including
Errors, omissions, misstatements, misleading statements, neglect, breach of duty or breach of trust
while performing or falling to perform professional services
Errors, omissions, misstatements, misleading statements, neglect, breach of duty or breach of trust by a
trustee, director or officer of the Corporate Trustee or Investment Management Company
Discovery
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Research & Brand Srategy
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Sketching
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Revisions
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Presentation
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Delivery & Support
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Typography
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Policy Features
-
Broad professional services liability
–Includes the formation, capitalization, operation and management of a private investment fund
–Includes lenders’ liability for those situations when permanent or temporary credit vehicles are more appropriate investments for a portfolio company
–Includes the customary financial and strategic advice given to develop portfolio companies -
Broad outside directorship liability
–Insurance for outside directorships on not-for-profit or private portfolio companies
–30 days’ insurance for outside directorships on publicly listed portfolio companies
–Run-off coverage, until the end of the policy period, for insured persons who resign from an outside board position - Claims made policy form
- Insured’s have the right to choose their own legal counsel subject to approval
- Advancement of defense costs
- No prior acts exclusion
- Severability of all exclusions for insured individuals
- Extended reporting period available
- In-house capacity up to $25 million, with various deductible options
- No exclusions or limitations on suits brought by portfolio companies against the venture capital firm, its employees or management
- Policy is non-cancelable by ERGO, except for non-payment of premium
- No exclusions for tortious interference, intellectual property or antitrust
What is excluded
- Pending or prior litigation, demands or judgments
- Claims against the fiduciaries or administrators of any retirement or employee benefit plan for employees
- Investment banking and dealer exclusions
- Defamation, wrongful entry, eviction, false arrest or imprisonment, malicious prosecution, assault or battery
- Claims of deliberate fraud, willful violation of regulations or statutes, illegal profit or advantage are excluded where they are established in fact
- Assumption of the liability of third parties pursuant to contract
- Intentional breach of contract where established at final adjudication
- Claims brought by security holders of trustee or investment manager
- Counterparty insolvency exclusion
Claim examples
EXAMPLE : 1
ABC Company made an error while amortizing its investment by entering the wrong cost of acquisition.
The error was observed 30 days later and it resulted in an inflated NAV and hence the AMC, with the
specific instructions from the Trustee and approval of an Independent Counsel, had to transfer around
US$ 500,000 for rectifying the error to avoid a possible dispute from the investors.
EXAMPLE : 2
ABC Scheme invested US$ 3 Mn in XYZ with a call/put option and a fixed maturity date. Just before the
maturity, in investment committee meeting it was decided to transfer this security from scheme ABC to
another scheme DEF. Inadvertently, the same was not executed. At the same time, on maturity,
call/put option was also not exercised. This was later discovered during periodic checks. ABC tried with
XYZ to exercise the option during the next few days with no avail. In view of repercussions and possible
disputes with Investors, the Trustees advised the fund to effect the transfer of this scrip as per market
rates prevailing on the date of transfer to DEF scheme. This resulted in a loss of US$ 100,000 to ABC
scheme investors which was to be made good by ABC scheme Investment manager.
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