Insurance issues are a critical aspect of any corporate transaction and should be addressed early in the deal process to help analyze the potential risk and avoid future economic surprises. The insurance-related issues that may arise in deal contexts are many and, at the outset, companies entering a potential deal should keep the following tips in mind.
1. Evaluate liabilities, exposures and insurance programs. Evaluating a target company’s insurance program frequently sheds light on the company’s overall operations and quality. A target company that presents a poor insurance risk relative to its loss history may also be a poor business risk. Accordingly, a party to a potential deal will be well-served to evaluate the target company’s operations to determine current liabilities and exposure to loss, and thoroughly examine its insurance portfolio to determine if existing insurance assets are likely to cover the liabilities. The analysis may also inform decisions regarding the need for future insurance purchases to fill any gaps in coverage for future potential risks.
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