The Deal Quotes Douglas Rappaport on the Use of Insurance by Activism Targets

The Deal has quoted Akin Gump litigation partner Douglas Rappaport in the article “Targets Look to Insurance to Fend Off Activists,” which reports that some corporations have convinced insurance carriers to cover, through their director and officer liability insurance policy, the costs associated with activist campaigns.

According to the article, insurers must be notified early and often during a campaign. Rappaport, who counsels and represents activists in litigation, suggested that while insurance may seem at first blush like a desirable idea for a company, it can’t impact a board’s fiduciary duty to consider whether an activist should be resisted, engaged or embraced.

“A board or management team should not use the prospect of such insurance as a means to help facilitate entrenchment or to compromise shareholder rights or the shareholder franchise,” said Rappaport. He calculates that simply beginning an engagement with an activist will often run up legal expenses, which could make costs run exponentially higher. “Activist campaigns that lead to expedited litigation may require the expenditure of significant resources if not resolved soon after inception," Rappaport added.