M&A, Bankruptcy, and Insurance (Part 2)

Page 4 of 8

M&A insurance coverage issue: D&O

A change of control conditions effectively stops the existing directors and officers (D&O) coverage of the selling company. Run-off coverage should be provided by the prior entity for a minimum of 5 years.

Foreign acquisitions may have limited or no automatic coverage, depending on worldwide acts and jurisdiction.

The acquiring company's policy may not have proper newly acquired coverage. An example is a newly acquired LLC. Typically, the D&O policy refers to newly acquired organizations when the named entity acquires more than 50% of voting stock. LLCs do not have stock as the basis of ownership.

Sample language for D&O changes in exposure
"Acquisition or Creation of Another Organization
If during the Policy Period the Company
a) acquires...another organization which as a result of such acquisition or creation becomes a subsidiary; or
b) acquires any organization by merger into or consolidation with the company,

such organizations and its Insured persons shall be covered under this policy as follows:
If fair value is less that 10% of the total assets of all the companies - automatic coverage but only for wrongful acts taking place after such acquisition unless insurer agrees after complete application to provide coverage by endorsement for prior wrongful acts."

Next Page >

Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.