Marsh, a leading global insurance broker and risk advisor, has introduced a significant enhancement to its directors and officers (D&O) liability insurance offerings, aimed at companies preparing for initial public offerings (IPOs). The new coverage specifically addresses indemnification obligations to investment banks—an increasingly critical area of financial exposure for companies navigating the complex transition from private to public ownership.

The enhancement comes in response to growing client demand for more comprehensive protection during the IPO process, which presents heightened legal, regulatory, and reputational risks. As companies prepare to enter public markets, they face scrutiny from regulators, potential shareholders, and other stakeholders. This heightened attention can result in legal challenges, often in the form of shareholder class action lawsuits. While standard D&O policies offer protection to companies and their directors and officers against such claims, they do not extend to the investment banks that play a central role in taking the company public.

Understanding the Risk Gap in IPOs

Investment banks serve as underwriters during an IPO, helping to draft the prospectus, market the offering, and facilitate the issuance and sale of shares to public investors. In doing so, these banks assume a degree of legal risk. However, under standard IPO agreements, it is the issuing company—not the investment bank—that agrees to indemnify the underwriters for potential claims arising out of the offering.

This indemnification obligation becomes particularly significant in the event of litigation, especially lawsuits alleging material misstatements or omissions in the company’s prospectus or registration statement. Marsh’s internal data reveals that investment banks are named as additional defendants in approximately 20% of all IPO-related shareholder class action lawsuits each year. More importantly, in nearly all lawsuits involving claims of misrepresentation or omission in offering materials, the underwriters are included as co-defendants alongside the issuing company and its executives.

When these lawsuits occur, investment banks typically invoke their contractual right to be indemnified by the IPO company. These indemnity payments—which can include defense costs, settlements, and judgments—are not covered under traditional D&O policies. As a result, the company may face significant out-of-pocket expenses at a time when financial and operational resources are already stretched thin due to the demands of becoming a public entity.

Bridging the Gap with New Insurance Solutions

To address this gap in coverage, Marsh has collaborated with several leading D&O insurers to develop a specialized enhancement that can be incorporated into a client’s existing D&O program. This enhancement is designed to offer insurance protection specifically for the IPO company’s indemnification obligations to investment banks named in securities litigation.

“Going public is one of the most transformative events in a company’s lifecycle, but it’s also fraught with legal and financial risks—many of which are not covered by traditional insurance structures,” said Andy Matthews, a vice president in Marsh’s Financial and Professional Liability (FINPRO) Practice. “One of the biggest blind spots has been the indemnification exposure related to investment banks, which can cost IPO companies millions of dollars. Our new D&O enhancement closes this critical gap, offering companies greater confidence as they move toward the public markets.”

The policy enhancement complements the existing layers of protection offered by standard D&O insurance, which typically includes Side A (protecting individual directors and officers when the company cannot indemnify them), Side B (reimbursing the company for indemnifying directors and officers), and Side C (providing entity coverage for securities claims against the company itself). The new indemnification coverage is designed to align with and extend these protections by covering a separate—but closely related—liability stream that stems from the company’s agreements with its underwriters.

Strategic Timing and Relevance

The rollout of this new coverage option is especially timely given the recent uptick in IPO activity and renewed investor interest in public equity markets. Following a period of reduced deal volume amid economic uncertainty and regulatory shifts, more companies are once again exploring public offerings as a path to capital and growth. At the same time, the U.S. Securities and Exchange Commission (SEC) and other regulators have intensified their focus on transparency and compliance in IPO documentation, further elevating the risk of litigation related to disclosure practices.

As regulatory scrutiny increases, and as plaintiff law firms continue to actively target IPO-related filings, the financial consequences of failing to properly manage indemnification exposure can be severe. The inclusion of tailored indemnification coverage within D&O programs reflects a proactive approach to risk management—ensuring that companies are not blindsided by high-dollar claims tied to their underwriters’ legal defense or settlements.

Client-Centered Innovation

Marsh’s approach to developing this new solution highlights its commitment to client-centered innovation in the complex field of executive liability insurance. By working closely with insurers to create a practical and scalable enhancement, Marsh ensures that companies have access to meaningful protection at a crucial juncture in their growth trajectory.

“This isn’t just about plugging a gap—it’s about enabling companies to move forward with strategic confidence,” Matthews added. “IPO readiness isn’t only about meeting regulatory requirements or securing investor interest; it’s also about ensuring your risk transfer strategy is as strong as your business strategy. This new coverage is a key part of that preparation.”

Conclusion

The IPO process offers tremendous opportunities for capital raising and brand expansion, but it also exposes companies to a new realm of legal and financial risks. One of the most overlooked among these has been the indemnification liability associated with investment banks. With its new D&O policy enhancement, Marsh is giving companies a powerful tool to navigate this complex landscape with greater security and foresight.

For companies considering an IPO, now is the time to engage with risk advisors and review the adequacy of D&O coverage—not just for executives, but for the broader set of obligations that come with going public. Marsh’s latest innovation in D&O coverage represents a major step forward in aligning insurance solutions with the evolving realities of the capital markets.