Portfolio Company Litigation: Some Practical Considerations For Board-Designees Of Private Funds

Individuals affiliated with private fund managers are increasingly being named as defendants in lawsuits involving fund portfolio companies, particularly where the fund controls one or more seats on the portfolio company's board, or where an individual affiliated with the fund sponsor serves as a senior executive at the portfolio company.

When an individual affiliated with a fund manager is named as a defendant in a lawsuit involving a portfolio company, some important questions should be addressed from the outset:

1. What insurance policies cover the board designee? Both the insurance coverage of the portfolio company and the private equity or venture capital firm should be carefully assessed. Does the portfolio company have D&O insurance that would apply? Does the firm have its own insurance policies that might cover the board designee in these circumstances?