Insurance tips for mergers and acquisitions

Added August 30, 2021
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According to Facts & Factors, the global greenhouse horticultural market was valued at $17 billion in 2019. By 2026, this market is expected to be valued at more than $40 billion, with a compound annual growth rate of 10 percent over that time.

As we emphasized in our 2021 horticulture industry trends article, the ongoing pandemic has accelerated where the greenhouse market is headed: rapid growth within a changing landscape of growers and retail businesses.

As this market grows, some businesses will expand or enhance their operations and services to meet demand. Aside from organic growth, this expansion and enhancement will also involve mergers, acquisitions, and partnerships with other businesses in our industry. 

If your company is involved in one of these transactions, don’t overlook its impact on your business insurance coverage. Ensure you and your business are properly protected. Below, we outline important factors to review during and after the merger and acquisition process, including three coverage options pertinent to your role as a business owner.

Ensure you have proper insurance coverage

A nationwide study found 75 percent of U.S. businesses were underinsured. If you’re among this majority, you leave your business vulnerable if you suffer a significant loss. As you review your business plan—whether or not you’re involved in a business deal—make sure you adjust your insurance coverage as your business evolves.

Mergers and acquisitions generally help widen product offerings and services for one of the businesses involved. As a buyer in these types of deals—with additional property, products, equipment, services, and possibly employees under your responsibility—you need to update your insurance policy to cover these new assets. These business transactions can impact your property, general liability, workers’ compensation, professional liability, and commercial auto coverages.

Use this checklist as you review and update your policy. Don’t let a lack of insurance lead to uncovered claims that impact your bottom line.

Schedules and coverages

Both businesses involved in a merger or acquisition need to review their insurance schedules and coverages to ensure neither will experience gaps in coverage. Review the following information and contact your provider to update as needed:

  • Effective dates
  • Expiration dates
  • Policy limits
  • Premiums
  • Deductibles
  • Discounts
  • Insureds and additional insureds

Specific coverages involving mergers and acquisitions

Mergers and acquisitions are often complex business interactions involving multiple individuals with differing interests. As a business owner, you need to pay attention to specific insurance coverages you might otherwise overlook when operating independently.

Let’s review three key coverage options and learn how they can impact your business.

Directors and officers coverage

This coverage helps protect you—along with your personal assets—if an employee, vendor, competitor, or customer accuses you of wrongful acts in managing your business, including:

  • Errors in managing employment-related matters
  • Reporting errors
  • Inaccurate information or disclosures 
  • Regulation violations

You can also help reduce your risk in these matters by practicing due diligence. Review all pertinent information, ask questions, and ensure all of the details are accurate regarding your business before sharing with others.

Change in control

Change in control is a provision often found in directors’ and officers’ policies. In fact, you may already have this provision as part of your current policy.

Change in control outlines how you’re covered for wrongful acts in the course of a merger or acquisition. This provision includes timeline-specific language, so be clear on the details.

Both businesses in the deal must discuss how—and, just as importantly, when—liabilities will be covered and by which party’s insurance company. 

Contact your insurance carrier as soon as possible if you’re considering a change in control regarding your business. You don’t want to find yourself paying for someone else’s wrongful acts after the deal is completed.

Tail policies

In broad terms, tail policies—also known as extended reporting periods—cover claims during what would otherwise be a gap in coverage following the sale of a company.

Tail policies help protect officers and directors from claims, such as wrongful acts, even if the acquiring company declines to protect them in the future.

Seek help from your insurance provider

Mergers, acquisitions, and partnerships can be complicated and often require a deep knowledge of business insurance policies and language.

If you’re considering such a move with your company, contact us. We can help ensure you’re properly covered heading into a transaction. We’ll help explain the factors that impact your business coverage so you and your team can concentrate on other aspects of the transaction.

Related links:

Check out the top risks for horticultural businesses like yours and learn about specific insurance coverages that can help protect you.

You can help prepare your business for the unexpected. Learn why umbrella insurance matters and how it helps pay for claims that exceed your liability limits.

Learn about three types of business insurance coverage that are crucial to protecting your bottom line.

The general information contained in this article is for informational or entertainment purposes only. The information in this article is provided “AS-IS” WITHOUT ANY WARRANTIES of any kind. Florists’ Mutual Insurance Company, its subsidiaries, or affiliates (Companies) do not accept any responsibility related to the content or accuracy of the information contained in this article. The information contained in this article should not be mistaken for professional or legal advice. Any use of this article or any third-party website linked to this article is at the risk of the user. THE COMPANIES ARE NOT LIABLE TO ANY PERSON OR ENTITY FOR ANY DIRECT, INDIRECT, OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR INABILITY TO USE THIS ARTICLE OR ANY THIRD-PARTY WEBSITE LINKED TO THIS ARTICLE. The views and opinions contained in third-party websites referenced in this article are the views and opinions of third-party authors and may not represent the opinions or policies of the Companies.

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