CHAPTER § 5.13 Insurance in Corporate Transactions

• Jurisdiction: United States

§ 5.13 Insurance in Corporate Transactions

[1] Successor Issues

Corporate mergers and acquisitions present the daunting prospect of becoming saddled with unexpected liability. Successor companies that have uncovered potential exposures to liability during the due-diligence investigation enjoy an advantage in the bargaining process during an acquisition.³⁰⁹ The due-diligence stage also may be a good time for the successor company to involve its insurance agent and coverage counsel. Since insurance coverage can play a key role in protecting those who ultimately may be liable, the participation of risk managers and insurance professionals in developing a strategy can help protect the company and its executives from the consequences of successor liability.³¹⁰

Additionally, as part of the due-diligence investigation, the purchaser must determine the adequacy and cost of the target company's insurance.³¹¹ Purchasers should examine all of the prospect's insurance policies and binders to secure information about the types of insurance carried, renewal dates, premiums, deductibles, policy limits, denials of coverage, and other pertinent information.³¹²

The purchaser also will want to learn the number and nature of insurance claims resolved and pending and whether any policies have been cancelled and the reasons why the insurer took such actions.³¹³ Another important consideration is the extent to which the target's insurance coverage is transferable in the event of a merger or acquisition; the purchaser will want to assure itself that insurance coverage currently in place will be continued.³¹⁴ Alternatively, if the purchaser intends to substitute its own insurance carriers for those used by the seller, it must...