Mergers & Acquisitions – understanding your insurance obligations

Adhering to Professional Indemnity Insurance (PII) procedures and understanding the potential costs involved are crucial in succession and exit plans, especially those involving mergers or sales. Engaging with your PII provider allows you to clarify any requirements or obligations that may arise during the succession or exit process.

This includes understanding how changes in firm ownership or structure could impact your PII coverage and any reporting or notification obligations that may be necessary.

Failing to communicate effectively with your PII provider could lead to gaps in coverage or unexpected liabilities, jeopardising your firm’s financial stability and reputation.

Adherence to Professional Indemnity Insurance (PII) procedures and understanding the potential costs involved are crucial in succession and exit plans, especially those involving mergers or sales. Engaging with your PII provider allows you to clarify any requirements or obligations that may arise during the succession or exit process. This includes understanding how changes in firm ownership or structure could impact your PII coverage and any reporting or notification obligations that may be necessary.

Failing to communicate effectively with your PII provider could lead to gaps in coverage or unexpected liabilities, jeopardising your firm’s financial stability and reputation.

Here are some of the main points law firms should remember:

• Acquiring firms must follow a specific process when purchasing another firm, especially regarding PII run-off policies.
• Insurers often require sight of the run-off policy before accepting the inbound firm’s future insurance protection.
• Firms must understand the dangers of acquiring others and running down their client work without notifying insurers, which could lead to policy non- renewals or the firm being uninsurable.
• Effective use of warranty and indemnity cover can mitigate risks and reduce costs for both buyers and sellers.
• Directors and Officers Liability Insurance can be amended to protect against personal guarantees.
• Understanding the mechanics and cost of run-off insurance is crucial for firms planning their exit strategy.
• Run-off is typically calculated as a multiple of the current year’s premium, but some firms may not fully grasp its implications.
• Insurers may require different multiples of the expiring premium for providing run-off coverage, ranging from two to three and a half times.
• Some policies may have uncapped excesses, leading to open-ended liabilities in run-off.
• Insurers can pursue vendor partners and directors for excess post-closure, emphasising the importance of understanding run-off terms and conditions.

 

Firms can further protect themselves by engaging with professionals experienced in succession and exit planning, regulatory compliance, M&A insurance placement, and firm acquisitions. By doing so, firms can confidently navigate the complexities of the succession and exit plan process, ensuring a seamless transition while maintaining the trust and confidence of the clients.

Warranty & Indemnity Insurance is a tailored insurance product to predominantly cover breaches in representations and warranties given in the sale of a business.

Sellers can cover themselves to prevent transaction proceeds being tied up in escrow accounts and buyers can ensure that warranties have real value, even if the seller is unable to pay a warranty claim which arises sometime in the future.

A W&I policy can protect the investment and proceeds for both buyer and seller and provide greater financial comfort around the deal. For more information request our W&I brochure or contact us to arrange a no obligation consultation with one of our experts.

 

Sessions for Solicitors – Stay Informed

PIB Insurance Brokers in association with The Strategic Partner will be holding Sessions for Solicitors shortly, which will be free to attend, and one of the focus points will be understanding your obligations through a merger or acquisition.

These will also provide an opportunity for firms to address their concerns regarding professional indemnity insurance obligations. If you are interested in attending one of our academies, please send a message to Sally Timms who will provide you with further information on how to attend.