Agency: Assessing Your Insurance Exposures for Merger & Consolidations

Merger and consolidation activity in the health-care industry continues to be high. If you are considering acquiring another practice or selling your business, there are many things to consider, and the implications for your insurance exposure should be included in that list.

From a property and casualty insurance perspective, the first thing to be aware of is that insurance policies are not transferable or assignable.The acquiring organization cannot simply continue the same coverage the acquired organization had in place. The additional exposures will need to be added to the acquiring organization’s policy, or a new policy must be issued. For the seller, a policy can be cancelled once all assets and liabilities have been transferred. It is important to consider that if any operations or discontinued products were not part of the sale, separate coverage may be necessary.

If an acquisition adds multiple new locations to your business, your premises liability exposure increases. That is a good time to review your liability limits and consider adding additional umbrella liability.

From a management liability standpoint, the decision to sell presents a strategic risk for your directors and officers.
Derivative claims may be brought by shareholders unhappy with the sale price or the way the transaction was conducted. Potential buyers and sellers both must conduct their due diligence before agreeing to sell. If your organization does not have management liability or directors and officers (D&O) insurance, these potential exposures will fall to individual owners, officers, and directors.

It is also important to remember the D&O policy for the acquiring organization will likely not include the prior acts of the acquired organization. To cover this exposure, you will need to purchase an extended reporting period, or tail coverage, for your D&O policy.

Whether you are looking to buy or sell, it is vital to involve all your professional partners. Just as you would consult your attorney and accountant before considering an acquisition or merger, remember to consult your insurance
broker to discuss the impact on your exposure and what can be done to mitigate the risks.