Insurance carriers have the ability to offer solutions to companies faced with litigation, including employment practices, securities fraud and product liability, or other known occurrences that could impact the ultimate price paid for their company. Capping the potential loss or completely transferring the exposure benefits both the buyer and seller. The buyer is able to expand the list of potential acquisition candidates, have greater certainty in the valuation and offer process, and eliminate distractions. The seller can enhance their company's value, remove possible obstacles that may interfere with the closing of the sale and reduce escrows required to address future expenses to the buyer. The policy provides coverage for the expense of contesting the IRS challenge, interest incurred, and fines and penalties rendered.
Coverage is in effect for the statute of limitations.
Other insurance products are designed to address pre-transaction exposures that create potential future liabilities. Most insurance policies do not provide an insured coverage for the liabilities of an acquired company for events prior to the transaction. Any gaps in the insurance programs, including uninsured and under insured liabilities, of a company to be acquired could impact the buyer's future earnings. Mazonson, Inc., Two Corporate Way, Peabody, MA 01961-6071.