Nvidia Has No Insurance for Lawsuits...Defenseless Against Shareholder Suits

[Financial News]  

Although a major setback hit Nvidia in the form of CEO Jensen Huang’s resignation over a scandal, the company has virtually nothing in place to protect it from shareholder lawsuits.
The Financial Times (FT), citing two sources on the 14th (local time), reported that, unlike other large corporations, Nvidia had purchased only Side A coverage of directors and officers (D&O) insurance, which covers only individual executives’ legal costs.
Side A insurance protects executives’ personal assets when a company cannot pay legal costs or damages on management’s behalf because of bankruptcy or legal restrictions, for example. Nvidia has a policy with coverage of up to $900 million.
However, it was confirmed that Nvidia had not purchased Side B or Side C coverage.
Side B insurance reimburses the company for legal fees or settlement costs it first pays on behalf of an executive who has been sued.
Side C insurance covers legal costs and damages when shareholders file a class-action lawsuit against the company, rather than its management.
Nvidia is already facing shareholder lawsuits.
At least one shareholder lawsuit was filed as Jensen Huang resigned on the 12th amid a series of scandals and the stock price plunged. It is a class-action suit against former CEO Huang and the company.
The FT reported that while companies generally purchase Side B and Side C coverage, which protect the company, alongside Side A, which protects company officers and directors, Nvidia had purchased only Side A coverage through insurance broker Aon, with a limit of up to $900 million for its directors and officers.
Lawyers and insurance brokers said that large publicly traded companies sometimes forgo B or C coverage, though this is rare, because of the high premiums. Nvidia is one of those rare cases.
Without B or C coverage, Nvidia will be left fully exposed to risk if it faces future class-action lawsuits, including “stock-drop” suits.
Aaron Le Marque, head of policyholder disputes at the law firm Stewarts, said, “For listed companies, it is standard to have A and B coverage, and they take it out almost like mandatory insurance.” He continued, “In the U.S., the risk of litigation exposure is also extremely serious, so most listed companies take out C coverage as well,” and noted, “Every company is constantly sued.”

[email protected] Song Kyung-jae Reporter