Buyers and sellers are using representations and warranties
insurance more frequently in M&A transactions as a means to
enhance bids in competitive auction processes and to limit exposure
to post-closing indemnification liabilities. Representations and
warranties insurance has been previously discussed on this blog
here), including how it can be beneficial to buyers and sellers
in transactions by providing access to the insurance industry's
capital and allowing the transfer of certain transaction-related
risks in M&A deals to the insurance market.
Representations and warranties insurance coverage can, however,
be tailored to mitigate specific types of risk in transactions.
Insofar as environmental risk has become a more prevalent concern
in M&A transactions, environmental liability insurance is
gaining popularity amongst both buyers and sellers. In pushing for
environmental insurance coverage, buyers seek to avoid unknown
environmental liabilities not factored into the purchase price and
sellers seek to avoid continuing environmental liabilities of the
Environmental liability insurance, however does not cover all
environmental risks – it is not a "catch all".
Marsh & McLennan Companies published a
report that highlights nine considerations that must be taken
into account when using representations and warranties insurance to
cover environmental risks:
The coverage is expected to pay for the cleanup of unknown,
New conditions coverage is not provided.
Consequential losses, such as third-party bodily injury,
third-party property damage, business interruption, and natural
resource damages my not be covered. Coverage for non-owned disposal
sites and divested properties is also not guaranteed.
Policy terms vary from one to six years.
Self-insured retentions are typically 1.5% to 2% of the
Limits and self-insured retentions are shared with other
representations and warranties-related risks.
Coverage applies to environmental laws at the time the deal is
closed and does not cover changes in laws going forward.
There is no duty to defend under representations and warranties
insurance policies, although defense costs will be paid once a
breach has been determined to have occurred.
High-risk industries such as chemical, petrochemical, and heavy
manufacturing are not a target class for environmental coverage
under a representations and warranties policy.
It follows that although representations and warranties
environmental liability insurance is becoming more common in
M&A transactions, buyers and sellers must understand that it
may not provide sufficient coverage in all circumstances.
Additional standalone insurance may be necessary in high risk
transactions, and in all cases parties must consider the nature of
the deal at hand and negotiate the insurance coverage they deem
The author would like to thank Robyn McLaren, articling
student, for her assistance in preparing this legal
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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