ERMI Addresses Exposures Related to Business and Property Transactions

PRODUCT: Mergers, Acquisitions and Pollution Protection (MAPP)

COMPANY: Coverages are packaged by using merger & acquisition and environmental liability insurance markets. Participating carriers include Westchester and Great American.

BEST RATING: A or higher (Excellent)

AVAILABILITY: Coverage is available through independent agents via ERMI brokerage services.

FOCUS: Environmental Risk Managers, Inc. (ERMI) reports that pollution liability insurance is increasingly requisite to completing mergers & acquisitions. Brooks Bunbury, vice president of ERMI, also cites “a growing interest in incorporating representations & warranties [R&W] insurance into M&A transactions.”

As a general rule, R&W policies offer “very limited—if any—coverage for pollution,” Bunbury says. “But at the end of the day, all sides of the deal just want a clean transaction.”

Data from the insurance industry confirms that one in every four M&A deals has at least one claim of an R&W breach. “Due to the complexity and depth of indemnifications in most transactions, there is a strong likelihood of litigation after closing,” Bunbury explains—but litigation is expensive and time-consuming, and it seldom results in desirable outcomes.

To meet this growing need, ERMI now offers R&W, tax liability and pollution liability insurance individually—or combined in a package—to allow all parties to go their separate ways, while reducing the risk of unforeseen liabilities arising from the transaction. Mergers, Acquisitions and Pollution Protection (MAPP) offers financial assurance if a problem arises after closing, which creates a cleaner transaction and reduces risk.

UNDERWRITING: Coverage options include R&W, which provides coverage for the breach of a representation or warranty contained in a buy/sell agreement in addition to—or as a replacement for—all or most of the seller’s contractual representations and warranties.

Coverage also includes environmental liability insurance, which protects property buyers against unknown environmental conditions that may be discovered after closing. This coverage upholds property value and assists the purchaser in securing financing to complete the transaction.

According to Bunbury, real estate buyers who use this product often find they can negotiate with the seller to share the cost of insurance and obtain a better financial package than if they did not have coverage.

Multiple locations can be covered on a single policy.

MINIMUM PREMIUM: $150,000.

TARGET: Business sales valued at $20 million or more. For monoline environmental liability insurance, any size property transaction.

COVERAGE TERRITORY: All 50 U.S. states.

CONTACT: Brooks Bunbury, vice president; Environmental Risk Managers, P.O. Box 210F, Moline, MI 49335; 231-218-1044.

Ronimarie Acord is an IA contributor.