Contingent Liability Insurance
Jurisdictions: no restrictions other than in respect of transactions or insureds located in the United States
Policy Period: up to a maximum of 7 years
Limit of Liability: up to GBP £46m (or local equivalent)
Brexit: contingency plans are already in place to enable us to continue to service EEA customers seamlessly even in the event that the UK exits from the EU without a deal
What is contingent liability insurance?
Contingent liability insurance offers cover for an identified legal risk allowing a part to reduce or eliminate an exposure.
By transferring these identified risks to an insurance policy, a party is able to cap or ring-fence a potential exposure or, if necessary, release committed capital.
The insurance is designed to cover low risk, high impact identified risks.
When can contingent liability insurance help?
Contingent liability insurance offers tailored solutions for specific risks that either arise in the ordinary course of business or that been identified during an M&A transaction. These may include a wide spectrum of issues ranging from environmental, employment or pension related liabilities to existing or threatened litigation.
Insurance can be used to:
- give peace of mind in relation to a historic position;
- remove the need for an escrow or reserve;
- stand behind or replace an indemnity;
- prevent price negotiations or delays by mitigating identified risks;
- allow investment funds to be liquidated and proceeds returned to investors;
- provide a liquidator with the comfort required to release proceeds;
- remove uncertainty from a restructuring or reorganisation;
- mitigate a risk to allow for favourable financing terms;
- provide a greater limit of liability than a counterparty is willing or able to offer (e.g. the insurance sits in excess);
- reduce uncertain accounting positions or expenses.
What can be covered by contingent liability insurance?
Among other factors, insurability depends on:
- the likelihood of a challenge (the risk should be considered low);
- the defensibility of the position taken (there should be defences available and the appropriate documentation/evidence should be available);
- the fact pattern relating to the risk (we will rely on the facts as represented to us);
- the situs of the risk (the relevant jurisdiction should have a stable court system with a concept of legal certainty);
- the quantum of the liability; and
- the motivation for insurance.
Although we will not offer protection against any divergence from the facts presented to us, it is possible to insure whether a legal test is met on the facts as represented.
Frequently Asked Questions
- What should a request for indicative contingent liability insurance terms include?
When seeking contingent liability insurance the following information should be provided: (i) an outline/description of the tax risk, (ii) details and analysis of any facts relevant to the risk (both positive and negative), (iii) a calculation of the limit of insurance required, (iv) details of what insurance is required (e.g. who is the insured, policy period, limit of liability, etc), and (v) copies of any advice in relation to the risk.
- Is contingent liability insurance available where there isn’t an M&A transaction?
Yes, contingent liability insurance can be used in the context of a transaction (e.g. M&A or a reorganisation) or as part of ongoing risk management (e.g. to prevent an accounting provision for a sizeable, low risk).
- What is covered by a contingent liability insurance policy?
Covered loss can include the loss suffered, interest, penalties, costs of defending an assessment and gross-up for tax on insurance proceeds.
- How long does it take for Brockwell to provide indicative terms for contingent liability insurance?
We can provide a quote for insurance within 48 hours depending on the complexity of the risk.
- How long does it take to obtain a finalised contingent liability insurance policy?
It will depend on the complexity of the risk and the amount of readily-available information, but it is possible to complete underwriting five business days following the receipt of responses to Q&A and all requested documentation.
- Will Brockwell offer cover for a position which a is believed to be incorrect?
No. We do not insure positions which are indefensible.
- When is the premium paid?
We charge a single, up-front premium.
- Can you provide cover in the USA?
We do not currently offer insurance either to US insureds or in respect of purely US transactions.