Corporate acquisitions and spin-offs are common. Although most companies involved with acquisitions are aware of the concept of tail coverage, many companies miss the second more important step in the process, which is to specify that the acquiring company has rights to pursue coverage for claims arising out of pre-acquisition wrongful acts. This simple concept is not always executed properly, because it requires that specific endorsements be added to the acquired companies policies, and very few risk professionals obtain these endorsements.
In today’s video presentation, Brian Friel addresses how to handle post-merger/acquisition claims, a topic that we rank as number 7 in our Top Ten List of Insurance Issues for Non-Insurance Lawyers.
Brian explains the importance of thinking through these issues carefully before closing, and provides examples of how Miller Friel has successfully recovered on claims for large corporate entities under acquired company insurance policies.
An absolutely critical component of any transaction is run-off or extended reporting coverage, whereby a claims reporting tail is added to the acquired companies policies as a condition to closing. Although directors and officers of the acquired company may demand this coverage feature, the real value, if executed properly, is to the acquiring company. As Brian explains, this benefit is magnified for larger acquiring companies for at least two reasons. First, large companies typically have significant self-insured retentions. Accordingly, it makes sense to place later-filed claims under acquired company policies rather than under the acquiring companies’ insurance policies. Second, if the acquired company is non-public, it likely has more expansive and generous D&O insurance coverage than, for example, an acquiring public company might have.
The claims example Brian discusses is for a large publicly traded pharmaceutical company client of Miller Friel that acquired a smaller non-public pharmaceutical company. The acquiring company was self-insured, but through expert negotiation and implementation, the acquiring company had rights to pursue coverage under the acquired company’s insurance policies, which contained low deductibles and better entity coverage than was available to the acquiring company.
At Miller Friel, our lawyers routinely assist corporate lawyers to make certain that valuable insurance rights are protected, and we have also successfully pursued a myriad of post merger/acquisition claims for large corporate clients. Please watch the video to learn a lot more about how this process works and the services we provide, and give us a call if you have any questions. Our telephone number is 202-202-760-3160.
To see the whole series, check out Top Ten Insurance Recovery Issues For Non-Insurance Lawyers.