The All-Important Insurance Factor In M&A

There are a host of insurance issues that arise in the context of M&A, and they should be addressed early in the process. The acquiring company should thoroughly research the target’s potential liabilities, its current insurance portfolio, it claims history and any other insurance-related information that can be gleaned from documents, litigation pleadings or individuals, including risk managers, executives and counsel. Be aware of how existing policies and policy terms will or will not transfer. For the deal itself, representation and warranty insurance (RWI) can help maintain deal value by shifting potential liability for unintentional and unknown breaches of representations and warranties to insurers, for a fixed cost. Keep in mind that shareholder litigation following a merger is virtually a sure thing: There is an average of about five lawsuits per M&A transaction, with more than 90 percent of transactions drawing at least one lawsuit. For that reason, directors and officers (D&O) coverage should be considered, as well.