Asset Purchase Agreement Insurance

Asset Purchase Agreement Insurance

Insurance is an important but often overlooked source of protection (especially in cases of negligence and serious claims). Buyers may hire experienced insurance advisors to check their seller`s existing and past insurance policies. Written “event-based” instructions may remain available to the seller after closing for claims made prior to closing. The buyer can negotiate with the seller to be designated as an additional insured for these event-based policies. In the case of “claims” written policies, the buyer may require the seller to purchase deposit insurance for the applicable limitation period. Tail-Coverage insurance pays a fee for advance events discovered within the extra time. Other special insurance may be available, including replacement and warranty insurance (which covers losses resulting from a breach of representation or warranty in the sales contract), environmental insurance (civil liability and pollution remediation costs), estate liability insurance, fraudulent transportation insurance, and potential disputes and insurance. The sales contract must clearly define the debts contained in the transaction and excluded, as well as the obligation for the seller to release the buyer from the retained and unfulsured commitments. Acquisition subsidiaries are useful in capturing successive liability rights at the level of their subsidiaries and in protecting the buyer`s core business. Cash transactions reduce the risk of liability due to “continued ownership” and also create liquidity to satisfy the seller`s current and future creditors. While the risk of unknown debt is lower for demining purchases than for mergers or equity transactions, the strongest defence is a solid and organized care.

If a buyer may be subject to large debts long after the transaction has been completed (for example. B, product liability and environmental rehabilitation costs), an appropriate screening assessment can identify and quantify risks. Once identified, risks can be attributed and reduced by measures such as debt compensation that are disclosed immediately after closing and insurance coverage for other rights. 1. I`m going to buy another one`s store. What insurance problems should I worry about? Purchasing assets means that while you acquire the company`s assets, existing commitments of all kinds – credit and contract obligations, legal commitments, etc. – remain with the seller. The same is true when preginal liabilities are unknown at the time of sale. In general, this is good news for the buyer.

However, this does not automatically lead to the disappearance of all problems. The general public often does not realize the change of ownership (especially if the name of the company or the DBA does not change significantly). If a lawsuit or claim arises, you have a good chance that these documents will be served on you. While the previous owner may be liable for the claim at the end, you can claim legal fees to defend yourself and be abandoned as a defendant. This also does not necessarily guarantee that you are not in the picture, especially if the previous owner had insufficient or non-existent insurance. The plaintiffs` lawyers may be bulldogs when they are looking for a deep bag. From this point of view, it is always important to ensure that the previous owner had adequate coverage. You may even want them to buy a special “tail” policy that continues to provide coverage for claims that occur after the sale, but that include products that were sold or transactions that were made prior to that sale. When buying a business, it is important to be aware of the potential insurance challenges a business owner may face depending on the type of purchase.

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