Parties to business transactions frequently seek to protect themselves against specific financing, litigation and transactional risks through insurance. The types of insurance to protect business’s interests and risks in M&A is growing:
- Insurance for breaches of contractual representations and warranties have become increasingly common, both for buyers and sellers.
- Standard-form policies may provide coverage for physical property being conveyed.
- Bespoke policies protect significant deal assets with contingent value, such as litigation judgments or tax claims.
- Other policies protect against known contingent risks of a deal, such as pending litigation risk, fraudulent conveyance risk, tax risk, or successor liability risk.
These and other risk management techniques are tools to help sophisticated businesses reach agreement in valuing and exchanging assets. Where insurance coverage is available, parties have greater flexibility to allowing modification of key deal terms, including in valuing assets with uncertain future value, or in modifying or eliminating indemnification provisions, escrow requirements, and materiality caveats.