Insurance for Nothing: The Hidden D&O Cost

Every SPAC needs Directors & Officers liability insurance. During the boom, it became one of the most expensive line items on the balance sheet — and one nobody talked about. D&O premiums for SPACs exploded from $500K-$1M pre-boom to $5M-$15M per year by 2021. For companies that were burning cash and had no revenue, this single expense could consume 5-10% of their entire trust.

Why SPAC D&O Insurance Was So Expensive

Insurance underwriters aren't stupid. They looked at the SPAC structure and saw a lawsuit factory: forward-looking projections that would inevitably miss, sponsor conflicts of interest, retail investors who would lose money and hire lawyers, and a regulatory environment that was tightening. The claims data proved them right — by 2022, over 30% of de-SPACs faced securities litigation.

At the peak, SPAC D&O insurance cost nearly 10 timeswhat a traditional IPO company would pay for the same coverage. And these weren't just higher premiums — policies came with larger deductibles, more exclusions, and shorter coverage periods.

The Tail Policy Trap

Here's where it gets worse. When a SPAC completes its de-SPAC merger, the pre-merger D&O policy expires. The newly public company needs a new policy, plus a "tail" policy covering the directors and officers for claims arising from the SPAC period. These tail policies cost 200-300% of the annual premium as a one-time payment. A SPAC that paid $8M/year for D&O might owe $16-24M for the tail alone.

Who Got Rich: The Insurance Brokers

Specialty insurance brokers like Aon, Marsh, and Willis Towers Watson saw their SPAC-related revenues surge during the boom. SPAC D&O became one of the most profitable lines in the entire commercial insurance market. Brokers earned 10-15% commissions on premiums — meaning a single $10M SPAC policy generated $1-1.5M in broker fees.

The total D&O insurance spend across all SPACs from 2020-2023 is estimated at $3-4 billion. That's $3-4 billion that came directly from SPAC trust accounts — money that investors thought would go toward building businesses.

The Irony: Insurance That Didn't Protect Anyone

Despite paying astronomical premiums, many SPAC directors and officers found their coverage inadequate when lawsuits actually arrived. Policies contained exclusions for "fraud or intentional misconduct," and insurers aggressively contested claims. Several high-profile cases saw insurers deny coverage entirely, leaving directors personally exposed despite years of premium payments.

Meanwhile, the investors who funded those premiums through trust dilution received no benefit at all. D&O insurance protects directors and officers — not shareholders. Investors were paying to protect the very people whose decisions were destroying their investment.

Case Studies in Insurance Excess

The burden fell hardest on small SPACs. A $50M trust paying $4M/year in D&O insurance was losing 8% of its entire trust to insurance alone — before accounting for underwriting fees, sponsor promote, legal costs, and operating expenses. By the time the de-SPAC closed, there was barely anything left.

Premium data from Woodruff Sawyer SPAC D&O surveys, insurance broker disclosures, and SEC filings. Updated March 2026.