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Insurance is a valuable but often-overlooked asset in corporate mergers and acquisitions. It is particularly important if one or both companies have significant potential liabilities such as those arising from environmental, asbestos-related, or other occupational disease claims. In the past, many corporate purchase and sale agreements have ignored or inadequately addressed the historical insurance programs that could provide protection against such liabilities. Litigation has often been the result. In some cases, the courts have failed to find that the insurance rights transferred along with the liabilities, so that potential coverage was forfeited. Too late, the companies in those cases learned that they had left money on the table when they negotiated a purchase or sale and that their insurers were the beneficiaries.
Drawing on our experience in litigating these specific issues and on our experience with coverage issues generally, we have helped our corporate clients both in their due diligence efforts and in crafting their overall merger and acquisition strategy. We have developed checklists to make the due diligence process more thorough and efficient; perhaps even more important, our lawyers can bring to bear years of experience in assessing (for example) a target company's contingent liability reserves and its implicit or explicit assumptions about future insurance recoveries. We have also refined a variety of different approaches, with accompanying contract language, to allocate the insurance assets in purchase and sale agreements. These efforts are enhanced by the experience of our colleagues in Covington's Corporate Practice Group.
Representative Matters
- Represented Pilkington North America in litigation before the Ohio Supreme Court for coverage rights for long-tail liabilities following a predecessor-in-interest's spin-out of a manufacturing division.
- Addressed transfer and retention of historic insurance coverage in major corporation’s sale of its chemical division.
- Performed extensive due diligence review of insurance issues and related liabilities for medical products manufacturing client in conjunction with acquisition of competitor.
- Drafted language for purchase agreements and other transaction documents to address the assignment of insurance assets in connection with multiple corporate transactions.
- Performed due diligence on legacy insurance issues in connection with purchases of target companies with potential long-tail liability issues, such as environmental, asbestos-related or occupational disease claims.
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