[Edaily Reporter KIM YOON JI ] It has been revealed that U.S. semiconductor company NVIDIA has not secured the insurance coverage that publicly traded companies typically obtain to protect against litigation. Consequently, there are concerns that NVIDIA may have to bear the costs of damages and legal fees directly in connection with various lawsuits that could be filed following the departure of co-founder and former CEO Jensen Huang.

According to sources cited by the Financial Times (FT) on the 14th (local time), NVIDIA purchased directors and officers (D&O) liability insurance worth up to $900 million (approximately 1.2 trillion won) through the insurance broker Aon; however, the coverage was limited to “Type A coverage,” which protects the personal assets of executives and board members. It did not include “Type B” or “Type C” coverage, which protects the company itself from damages and legal costs arising from the actions of its executives.
Listed companies typically purchase D&O insurance to prepare for lawsuits related to statements or decisions made by management and the board of directors. This insurance consists of Type A coverage, which protects individual executives’ assets and legal defense costs, and Types B and C coverage, which compensate the company itself for financial losses. According to a 2018 survey conducted by insurance broker WTW, approximately 91% of publicly traded companies had separate D&O insurance, and more than 80% had secured not only Type A coverage but also Type B and C coverage. The FT noted that while some companies exclude Type B and C coverage due to high premiums for large publicly traded firms, this is not a common practice.
Over the course of a week—beginning on the 8th of this month, when former CEO Huang admitted to an extramarital affair with Alice Huang, who is suspected of being a Chinese spy, and followed by further revelations of infidelity and his resignation as CEO—NVIDIA’s stock price fell by more than 12%. This stands in contrast to the Nasdaq index, which rose by more than 2% during the same period. NVIDIA’s market capitalization also declined by more than $500 billion (approximately 670 trillion won) over the course of that week.
As a result, NVIDIA is now facing a class-action lawsuit from its shareholders. In a complaint filed on the 9th of this month with the U.S. District Court in San Jose, California, NVIDIA shareholders—led by lead plaintiff Mark Kistenmacher—alleged that NVIDIA and former CEO Huang provided shareholders with misleading information regarding the alleged extramarital affair with Alice Huang. The plaintiffs also pointed out that the company failed to disclose the matter, even though the incident raised national security concerns that could threaten NVIDIA’s reputation and business prospects.
While former CEO Huang’s personal legal liability may be covered under Type A insurance, depending on the type of lawsuit and the terms of the policy, the company is exposed to the risk of having to bear the damages and legal costs associated with such litigation directly. Aaron Le Marque, head of the Policyholder Disputes practice at Stewarts Law Firm, explained, “It is common—and in fact considered essential—for publicly traded companies to have both Type A and Type B coverage.” He added, “In the U.S., most large publicly traded companies also have Type C coverage because the risks associated with litigation are so significant; every company is constantly facing lawsuits.”
Brian Boyle, head of the Financial Insurance Division at MSIG, said, “Large U.S. publicly traded companies generally subscribe to Types A, B, and C coverage, with coverage limits reaching hundreds of millions of dollars.” He added, “Some companies subscribe only to Type A coverage, but such cases are very rare. One reason for this may be cost.”