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Professional Liability Insurance Issues in Mergers and Acquisitions
Professional Liability Insurance Issues in Mergers and Acquisitions
03.03.2018As insurance brokerage firms mature and prosper or as they encounter challenges brought on by changes in the economy, mergers or acquisitions may be considered. Unfortunately, many firms fail to consider key insurance issues that may increase the costs, time and stress involved in such transactions. Your insurance broker and carrier should be consulted early in the process in order to ensure a smooth transition.
Issues a firm should consider when contemplating a merger or acquisition include:
Prior Acts
Make sure that prior acts for both firms are covered under the on-going policy or a “run off” policy or consider purchasing tail coverage.
Named Insureds
Closely review the named insureds on the new policy as it is a primary coverage trigger.
Combined Claims Experience
The new firm should review the combined claims experience of the predecessor firms as it can impact its coverage, deductible and price at renewal.
Open Claims
Open claims and circumstances will require expenditures of otherwise billable time, money and stress. Reserves should be established from the assets of the old firm to respond to those obligations.
Unreported Claims and Circumstances
Failure to timely report claims and circumstances can result in a denial of coverage under both new and old policies. Always investigate this issue thoroughly and consult with your broker if any are discovered.
Outstanding Incidents
Are the firms currently working together on any projects / clients or have they in the past? Policy exclusions may prevent coverage for claims against each other after the merger /acquisition. Review any possible conflicts with your broker.
Risk Management, QA/QC
Document retention systems, risk management plans, standard contract terms and conditions, internal quality assurance and control, documentation and training procedures for both firms should be reviewed for consistency.
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