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3 Considerations for Companies Evaluating Insurance Coverage

On Behalf of | May 13, 2015 | Uncategorized

Business law attorneys at Snee, Mahoney, Lutche and Helmlinger discuss three important insurance-related tips for companies in 2015.

Insurance policies are a substantial necessity that must be a central consideration in any merger or acquisition. As companies are merging or acquiring, there are three important points to keep in mind regarding insurance coverage.

  • Ensure policies transfer. Insurance policies may often contain anti-assignment clauses which do not allow the assignment of the policies themselves, or rights under the policies, without the consent of the insurer. A company’s rights to insurance coverage will automatically bestow in the surviving company by the applicable state merger statute without involving the anti-assignment requirements in insurance policies. It is critical that all parties ask the question of which state’s law applies to an assignment of rights under insurance policies.
  • Consider representation and warranties coverage. Representation and warranties insurance (RWI) covers losses from unintentional or unknown breaches of representations and warranties made in an acquisition or merger agreement. Sellers use RWI to reduce or eliminate the amount of sale proceeds held back by the buyer or placed into an escrow account. RWI may be designed to cover specific representations and warranties within the agreement or it may provide broad coverage.
  • Value insurance policies. As a company considers whether to acquire another firm and its liabilities, it must value the insurance policies that cover those specified liabilities. An acquiring company should investigate the target company’s insurance policies, loss reports and pleadings/motions from any litigation involving the target company early on. After collecting all necessary insurance policies and information, an acquiring company should analyze the following questions:
  • What are the types of insurance policies?
  • Are the limits of the insurance policies still available or have the policies been converted?
  • Have the limits of the insurance policies been exhausted?
  • Is any coverage held with bankrupt or financially unstable insurance companies?
  • Are there fronting policies, retrospective premium programs or high deductibles?

Although these pointers are a helpful overview, the best path to understanding the complexities in this process is to hire a knowledgeable attorney to guide you. Insurance policies are a vital part of every business and should be analyzed very carefully and strategically. For more information, contact an experienced attorney at Snee, Mahoney, Lutche and Helmlinger in Bel Air today.