Insurance Representation Clause

Summary

This clause provides representations and warranties concerning a target company's insurance policies and coverage. This clause includes practical guidance, drafting notes, and an alternate clause. Insurance representations and warranties are standard provisions in acquisition agreements that require the seller to make factual statements about the target company's insurance program, including coverage types, policy status, claims history, and related matters. While often fairly straightforward, insurance representations serve critical functions in allocating risk in M&A transactions. Insurance representations can be included in both asset and stock purchase agreements, though the level of detail varies based on transaction complexity and the nature of the target business. These provisions are especially critical in industries with significant operational risks (manufacturing, healthcare), regulatory requirements (financial services, transportation), or potential long-tail liabilities (environmental, products liability). Insurance representations provide three critical functions: • Ensuring the adequacy of the target business's insurance coverage and risk management coverage • Identifying potential uninsured or underinsured exposure • Establishing a basis for indemnification claims for issues arising post-closing For buyers, these representations offer insights into how the target has historically managed risk and whether existing policies are sufficient. For sellers, these representations establish boundaries around insurance-related liability and create a framework for addressing insurance in the sale process. Of note, this clause contains standard insurance representations. If the target is in a specialized industry, then the clause should be tailored to address such industry-specific risks and regulatory requirements (i.e., medical malpractice insurance, cargo insurance, builder's risk insurance, and similar). The capitalized terms and section references used in this clause should be conformed as necessary to align with the facts and circumstances presented, and to align with the terms set forth in the applicable acquisition agreement. For a full listing of M&A provisions clauses, see M&A Provisions Resource Kit. For template full acquisition agreements, see Stock Purchase Agreement (Pro-Buyer) (DE) and Asset Purchase Agreement (Pro-Buyer) (DE).