Public Policy Avoid a pre-IPO disaster by getting the right financial insurance.

Getting ready to take your company public? Then you'veprobably got a lot on your mind, but have you thought about whatcould happen to your IPO if some problem within your organizationleads to a lawsuit and you don't have the appropriate insurancein place to protect your assets?

Having a solid financial insurance portfolio in place well inadvance of your IPO filing can make the difference between asuccessful leap to publicly held status and the ignominious ruin ofall you've worked for, says James R. Lopiccolo of MDM FinancialRisk Insurance Brokers in Los Angeles. You need to be certain youwon't sustain an economically devastating uninsured loss as youmove forward with your IPO, and standard commercial generalliability policies may leave critical gaps in your coverage.

Lopiccolo says your financial insurance portfolio should containthree essential types of coverage:

Technology professionalliability/errors and omissions (E&O). Depending onyour specific business and needs, Lopiccolo says your E&Oexposure will likely fall into the following areas: financial lossby a customer or other third party arising from errors andomissions in your performance, personal injury and intellectualproperty infringement arising from your products or media content,and virus and unauthorized-access liability related to breaches inyour network security. Insurance carriers have developed a numberof products to protect against these types of losses, particularlyfor technology companies.

Directors and officers liability(D&O). Experienced officers and outside boardmembers will play an important role in your ability to attractventure capital for pre-IPO growth, but Lopiccolo notes that theseindi-viduals typically require protection for their personal assetsin case they are sued in their capacity as director or officer.D&O insurance allows you to provide for their concerns withouthaving to risk the assets of the company.

Employment practices liability(EPL). Lopiccolo says industry trends show a largepercentage of claims against directors and officers are related toemployment-practices violations, such as wrongful termination,discrimination and sexual harassment. These types of claims canoccur at any time, especially in rapidly growing companies, and canbe costly.

Technology companies may have some special insurance needs inthese areas and may find fewer insurers offering appropriatecoverage, Lopiccolo says. Volatile stock price valuations andresulting fluctuations in market capitalization are the primarycharacteristics that trigger securities class action lawsuitsagainst technology firms, notes Lopiccolo. This factor affects theterms, conditions and pricing of D&O coverage for high-techIPOs. Other influences include the rise in the number of classaction securities lawsuits and their ultimate settlement values,and the fact that high-tech companies continue to be the mostfrequently sued of all industry classes.

If you fail to address your E&O, D&O and EPL exposureswith adequate insurance, you risk having to state uninsuredliabilities on your balance sheet, which could seriously damageyour IPO launch. Acquiring protection isn't just a preventivemeasure: Having a solid financial insurance portfolio will assistwith your efforts to raise capital, explains Lopiccolo.

Also remember that the structure of your insurance will beslightly different when you go from being a privately held to apublicly held company. To ensure that the appropriate coverage isready to kick in as soon as you launch your IPO, Lopiccolo adviseschoosing an insurance broker with experience in taking companiespublic.

Contact Source

• MDM Financial Risk Insurance Brokers, (213) 892-7637,jlopiccolo@mdmbrokers.com