Insurance glossary · Deals and private equity
change in control.
A change-in-control clause says what happens to a policy when the company is sold or merged. For many management liability policies, coverage for new acts stops at closing.
What counts as a change in control for an insurance policy?
Usually a merger, an acquisition of more than half the company’s ownership or voting rights, a sale of substantially all its assets, or a new party gaining the right to elect most of the board. Each policy defines it, and the definitions differ.
What happens to directors and officers coverage when a company is sold?
Most management liability policies go into run-off at closing: they keep covering claims about acts before the sale, but stop covering acts after it. The buyer’s program, or a new policy, covers the company going forward.
Why is a tail purchased at closing?
Because run-off coverage only lasts for the remaining policy period unless it’s extended. Sellers usually buy a multi-year tail on directors and officers, employment practices and fiduciary policies so former directors and officers stay protected for claims about their time running the company.
Does a change in control affect other policies?
Yes. Some property, liability and auto policies require notice or insurer consent, some cancel or let the insurer cancel, and workers’ comp experience may transfer to the buyer under the rating bureau’s ownership rules. Each policy needs to be checked before closing.
Who pays for the tail?
The purchase agreement decides. Often the seller pays, sometimes the buyer agrees to maintain coverage for former directors for a set number of years, and the cost is frequently treated as a transaction expense.
What happens when a private equity firm buys a company?
The company is often moved onto the sponsor’s portfolio insurance program or a new standalone program after closing, while the seller’s policies go into run-off. Timing matters, so there’s no gap between the old program and the new one.
Can a change in control happen without a sale?
Yes. A recapitalization, a new majority investor or a shift in board control can meet a policy’s definition even when the company keeps its name and operations.
by type of buyer.
- Private equity sponsorsEvery acquisition and add-on closing triggers change-in-control provisions on the target’s management liability.
- Portfolio companiesMoving onto a sponsor’s program after closing means coordinating run-off, tail and new coverage dates.
- Search fundsThe seller’s policies usually go into run-off at closing, so the searcher’s new program has to start that day.
- Founders and executivesSelling founders who served as directors rely on the tail for claims about their time running the company.
where you’ll see it.
- Policy conditionsA “change in control” or “acquisition of the named insured” condition in the D&O or management liability form.
- Purchase agreementsA covenant to buy a six-year tail or maintain D&O coverage for former directors and officers.
- Diligence reportsA review of which target policies cancel, run off or need consent at closing.
no gap at closing.
Riza reviews each target policy’s change-in-control terms in diligence, prices the tail, and lines up the post-closing program so coverage moves from seller to buyer on the closing date.
Get a quoterelated terms.
Longer guide: Exit-ready insurance and the D&O tail · The first renewal after an acquisition
Coverage it touches: D&O and employment practices · Insurance due diligence