A transactional situation is typically the most risky time for directors and companies with change of control, change of directors, and perhaps a change in direction.
1. Cover for Acts prior to takeover
If a company is being taken over its existing cover and that for its directors will usually cease in respect of claims arising from acts post-takeover. Cover for claims arising from acts prior to the takeover will usually continue until the end of the policy period.
As claims can arise quite some time after an alleged wrongful act took place, it is prudent to understand the risks you are facing and arrange cover for claims arising from acts prior to takeover.
TYPE OF COVER
Run off policy: cover for pre agreed limit, period (generally up to six years) and cost
Buyer’s policy: negotiated cov- er under existing insurance(s)
COMMENT Fixed term.
Certainty of cover for the period.
Known cost for the period, potentially included in transaction costs. Ring-fenced limit(s) of liability for the period.
Uncertainty of cover or term. Cover renewed, or not, with ongoing insurance arrangements. Undefined term.
Unknown ongoing cost. Shared limit of liability with ongoing business.
Retired directors cover No cover
Many directors and officers liability policies provide 72 months cover for directors retired dur- ing the policy period if no other cover is in place – however please check your wording as this cover may not apply in the event of a takeover.
Liability is born by the individual or the company. 2. Cover for Acts post-takeover
Ongoing cover will need to be arranged for Acts occurring post-takeover. In addition to ensuring cover is in place, the appropriateness of limits purchased should also be considered in light of the changing profile of the insured entities.
TYPE OF COVER
Buyer’s policy: automatic acquisition / new subsidiary cover
Buyer’s policy: negotiated cover
COMMENT
Many policies contain automatic cover for newly acquired subsidiaries. For cover to apply this is often restricted to such entities within a certain size, those domiciled or listed outside of specified territories and those with activities similar to those carried out by the parent company.
Cover agreed via negotiation with insurer.
Ensure professional services definition or similar and information disclosed covers any new activities.
Limits may be increased in line with the increased size and risk of the insured.
Insurance policies for personal and corporate liabilities vary widely in how they respond to mergers and acquisitions. To understand how your policy works and ensure appropriate cover is in place, contact your broker. n
Company Profile
Howden are an ambitious, dynamic and highly competitive global provider of a range of specialist insurances, and have specialised in financial lines products for the financial institutions sector ever since it was first formed.
We have more specialists dedicated solely to the asset management sector than any other London market broker; we provide cover for 36% of the UK PE/VC market, 30% of the Top 50 Euro Hedge Funds, 25% of the UK BVCA membership and have 700+ Investment Funds and manager clients.
Starting with one office in 1994, we’ve extended our reach significantly; we’re now a specialist broker with over 35 offices in 20 countries.
Our group comprises a wholesale and reinsurance model built on a series of global hubs, and a local retail capability in a number of countries. Our overseas locations share our values; at the same time, each business stands on its own and adds value in its own right. Our structure, our culture, and our people in offices across the world allow us to solve tough problems for clients, wherever they are. The keys to our success: industry-leading expertise and exceptional service.
Howden Insurance Brokers Limited is an FSA authorised Lloyd’s Broker and part of the Hyperion Insurance Group, a UK headquartered and independent private equity backed insurance business.
Howden were named Insurance Broker of the Year at the 2011 British Insurance Awards.
Risk and Insurance in Private Equity and M&A 2012/13
Author Viewpoint 59
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