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Protecting IPO companies from investment bank indemnification costs

IPO companies face risks from shareholder claims and indemnification of underwriters; specialized coverage helps protect their balance sheets.

08/07/2025 · 3 minute read

Going public is a significant milestone for private companies. However, an initial public offering (IPO) can be complex, exposing IPO companies and those assisting them through the process to a wide array of potential liabilities, including shareholder litigation.

The intricacies of the IPO process sometimes lead to shareholder claims related to alleged misstatements in the prospectus, inadequate disclosures, or poor post-IPO stock performance. Marsh data shows that investment banks that prepare prospectuses and facilitate the issuance and sale of a company’s shares to the public are named as defendants in about 20% of all IPO-related securities lawsuits. 

Investment bank indemnification risks

Companies going through an IPO typically indemnify their deal underwriters against certain legal claims that may arise following the IPO. This indemnification provides participating investment banks with protection from potential liabilities linked to the securities issuance.

However, this arrangement may leave the IPO company exposed to financial risk. While IPO companies typically purchase directors and officers liability (D&O) coverage to protect themselves and their senior leaders from shareholder suits, this policy does not extend protection for the indemnification of investment banks.

Depending on the outcome of the lawsuit, the IPO company’s indemnification obligations can lead to escalating costs related to legal fees, settlement expenses, and regulatory penalties, which, in the absence of appropriate coverage, must be absorbed by the IPO company.

Underwriter coverage helps protect IPO companies’ balance sheets

Considering the potential costs related to these indemnification obligations, Marsh has worked with multiple insurers to be able to offer IPO companies the ability to add a specialized insurance enhancement to their traditional D&O policies in the form of underwriter coverage. This extension provides coverage specifically for exposures related to the IPO company's indemnification obligations owed to investment banks.

Unlike standard D&O policies that primarily cover directors and officers against claims made by shareholders or regulators, underwriter coverage offers dedicated protection for the IPO company’s financial responsibility toward its underwriters. 

Underwriter coverage can be tailored to an IPO company’s specific needs. This proactive approach not only helps mitigate the financial impact of potential shareholder lawsuits, but can also demonstrate the IPO company’s comprehensive risk management strategy to investors, regulators, and other stakeholders. 

A flexible, customizable solution

The first half of 2025 saw a surge in IPO activity. 168 IPOs, including special purpose acquisition companies — almost double the 94 in the first six months of 2024 — raised close to US$29 billion. As companies prepare to go public, underwriter coverage can provide them with a vital layer of balance sheet protection, helping them safeguard against the potential financial consequences of shareholder litigation that also name their investment bank. By addressing the often-overlooked exposure related to underwriter indemnification obligations, IPO companies can be in a better position to navigate the IPO process and retain a resilient balance sheet.

Marsh’s expertise in structuring enhancements like underwriter coverage allows companies to remain compliant with regulatory expectations and ready for any legal challenges that may arise during or after they go public. Our team’s deep understanding of the legal landscape, claims histories, and market trends enables us to design solutions that enable companies to navigate the IPO process with greater confidence, empowering them to focus on their growth and strategic objectives.

For more information on adding underwriter coverage to your existing D&O policy, contact your Marsh representative.

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Our people

Deepak Adappa

Deepak Adappa

Managing Director, FINPRO

  • United States

William Fahey

William Fahey

Private Company D&O Product Leader, FINPRO

  • United States

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