Transactional Liability
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Transactional Liability
A critical strategy to mitigate risk in any transaction is the use of transactional liability insurance. This coverage protects buyers and sellers against financial losses arising from breaches of the seller’s representations in the purchase agreement. In the high-stakes environment of M&A, where the potential for unforeseen liabilities can jeopardize the success of a deal, transactional liability insurance provides a vital safety net. It ensures both parties can proceed with confidence, knowing they are shielded from post-closing disputes and costly litigation. This coverage can facilitate smoother negotiations by reducing the need for extensive indemnity holdbacks, allowing the deal to close more quickly and with fewer contingencies.
Representations and Warranties Insurance
Representations and warranties insurance (RWI) is a cornerstone of transactional liability coverage, designed to address specific risks associated with the accuracy of the seller’s disclosures. This coverage not only protects the buyer against financial losses from breaches of representations but also allows sellers to exit more cleanly, with less capital tied up in escrow. By transferring certain risks to the insurer, RWI coverage helps to bridge gaps between buyers and sellers on key deal terms, making it easier to finalize negotiations. It can provide greater certainty and peace of mind to both parties, contributing to the overall success and stability of the acquisition.
Tax Insurance
Tax insurance policies may provide a remedy for known but uncertain tax positions and whether they will be respected by a governing body. These policies provide an economic solution to achieve certainty for material tax exposures in transactions, in tax planning, and where the parties may not be able to obtain a private letter ruling.
Contingent Liability Insurance
Contingent Liability Insurance (CLI) can be used in M&A or other investment transactions for known identified legal risks which neither party to the transaction is willing to accept. CLI may be used in conjunction with risks such as litigation, legal interpretation risk, successor liability, intellectual property or employment disputes. Contingent liability insurance is a tool designed to mitigate or eliminate exposures related to contingent risks to ensure an M&A transaction can close quicker or a protracted exposure can be brought to a meaningful and efficient resolution
