Top Tips for Seamless Insurance Coverage in a Deal

For buyers, the first step is to evaluate claims or litigation being faced by the target company.

“If the target company has a billion-dollar claim pending against it, who’s going to gamble on that claim?” Wallan asked.

Next, buyers should examine the target’s existing policies and how the insurer has responded to existing claims.

“Look at existing coverage—does the target company have enough coverage? What is the status of claims under that coverage? Does more coverage need to be purchased?” Wallan said. “There is no one-size-fits-all formula to answer that question.”

Finally, under the California Supreme Court's ruling last year in Fluor v. Superior Court, a company can assign its rights under insurance policies to successors without an insurer's consent once a loss has already occurred.

“When you're buying a company, it's possible that the company's existing coverage will provide some benefit for you for losses predating the close of the transaction," Wallan said. “In most circumstances, though, the buyer is on its own for securing coverage for losses that occur once the transaction is completed.”