It is standard practice in the US, and increasingly common in the UK,for insurance of warranties or potential liabilities to be a requirement in transactions. Where banks are involved in some of the tiers of finance this is even more likely as a requirement.
Directors find themselves signing off on literally hundreds of statements and want to know that they are insured for inadvertent error.
These insurances can be the difference between the deal being on or off, and this insurance sector is constantly evolving to accommodate the pressures of emerging risks and obsessive bank risk mitigation.”
Over the past few years the indemnity insurances associated with transactions have grown past the Tax covenants and now encompass risks as wide as environmental issues, patent legitimacy, and land covenants.
These insurances take time to underwrite as a full understanding of the transaction is required, as well as a sight of draft documents. Building this into the transaction project plan can lead to very positive outcomes.
Directors and Officers risk associated with the transaction can be put into a multi year policy, moving the cost of the insurance into deal costs, rather than the trading company’s P+L.