open lawsuits, before you own them.

where does the list of open matters come from?

No single document lists every open matter. Build the list from four sources and reconcile them, because each one misses something the others catch.

Audit inquiry letters follow a framework the ABA adopted in 1975 that auditing standards still reproduce, and lawyers’ responses are deliberately limited. Treat them as one input, not the list. PCAOB AS 2505.

which policy responds to a lawsuit that is already open?

• Occurrence policies, such as general liability, auto, and workers’ comp, generally respond under the policy in force when the injury or damage happened, even if the suit arrives years later. Ask for the policy for that year, not only the current one.
• Claims-made policies, such as D&O, employment practices, professional liability, and cyber, generally look to when a claim was first made and, for claims-made-and-reported forms, when it was reported. Confirm the retroactive date, notice deadlines, prior-acts terms and any related-claims wording. An open matter may attach to an earlier policy year. A later suit may require an extended reporting period, replacement prior-acts coverage or a valid earlier notice of circumstances, depending on the form.
• Reservation of rights. If the insurer is defending under a reservation of rights letter, read it. It names the exclusions the insurer may rely on later, and it is the most direct evidence of what may end up uninsured.
• Defense inside or outside the limit. On some lines, defense costs reduce the limit. New York’s Regulation 107 generally prohibits policies that erode limits or deductibles with defense costs, with exceptions for lines such as D&O, E&O, and employment practices at stated minimum limits and with signed disclosure. 11 NYCRR 71.2 and 11 NYCRR 71.3. Other states differ. Where defense erodes the limit, less limit is left every month the case runs.
• Limit left. Ask the insurer for the remaining aggregate in each affected policy year. Other paid claims may already have used part of it.

does an asset purchase change who gets the insurance for an open matter?

In a stock purchase, the target generally retains its historical policies and liabilities, but change-in-control terms can restrict coverage for acts after closing. A merger also requires checking which entity survives and how the policies treat it. In an asset purchase, the liability usually stays with the seller unless the agreement or successor-liability law moves it, and the seller’s policies usually stay with the seller too. If the buyer could end up holding the liability, it needs a route to the seller’s historical coverage.

Anti-assignment clauses are the usual obstacle, and state law varies. In 2015 the California Supreme Court held that Insurance Code section 520 bars an insurer from refusing to honor an insured’s assignment of coverage for injuries that predate the assignment, even where the policy has a consent-to-assignment clause. Fluor Corp. v. Superior Court (Cal. 2015). Do not assume the same result in another state. Have deal counsel address it in the agreement.

how much of an open lawsuit does the company still pay?

The insured share is rarely the whole bill. Add up five pieces for each matter.

1. The retention or deductible not yet satisfied, per claim and in aggregate.
2. Defense costs inside the limit, where the policy works that way.
3. Amounts the reservation of rights letter points toward exclusion.
4. Exposure above the limit that is left.
5. Internal cost: management time and disruption often remain with the company. Check whether any specific expense coverage applies rather than assuming reimbursement.

Who may satisfy a retention after a change of ownership is a wording question. In one Fifth Circuit case, a $250,000 self-insured retention was treated as satisfied when other insurers paid defense costs, because the policy did not expressly require the insured to pay it itself. Continental Casualty Co. v. North American Capacity Insurance Co. (5th Cir. 2012). Different wording can produce the opposite result. Read the retention clause for every open matter.

Open workers’ comp claims on a large deductible program carry their own obligation. The insurer handles and pays the claims and the employer reimburses it, usually backed by collateral. NAIC filing guidelines say the insurer’s obligation to pay claims is not eliminated if the employer fails to reimburse, and that ending the policy does not affect obligations for injuries before it ended. NAIC GL-1970. The reimbursement obligation and the collateral both have to be assigned in the deal.

how does open litigation show up in the deal numbers?

Accrual of loss contingencies is an accounting question for the QoE provider and auditors. The insurance input is the expected recovery and how reliable it is. For public companies, SEC staff guidance notes that the availability of insurance may be relevant to whether a contingency must be disclosed, and that the assessment should consider when recovery may be realized, whether the claim for recovery may be contested, and the financial condition of the party expected to pay. SEC Staff Accounting Bulletin Topic 5Y. Those three questions work on a private deal too.

• Timing. When will the insurer pay, and does the company fund defense first?
• Contest risk. Is there a reservation of rights, a denial, or a coverage suit?
• Payer strength. Is the insurer solvent and rated? Is part of the recovery owed by a subcontractor’s insurer under an additional insured endorsement?

how should the purchase agreement handle an open lawsuit?

R&W insurance is built for breaches nobody knew about. Matters disclosed in the schedules or known to the deal team are generally excluded, so known litigation travels through the tools above. The R&W side is in reps and warranties insurance by deal size.

Before closing, work with the broker and counsel to report claims and, where the form allows, circumstances to the appropriate insurers within the policy’s deadlines. Notice alone does not guarantee coverage or attach a later claim to that policy. Confirm the policy terms and the insurer’s position. Tail decisions are in exit-ready insurance and the D&O tail and the tail coverage glossary.

what does an open-litigation insurance review look like on one deal?

The useful output is that table, one row per matter, attached to the insurance memo capital partners want.

what is the open-litigation insurance checklist?

Coverage depends on the policy wording, the facts and applicable law. Obtain the insurer’s written position and have coverage counsel advise on any dispute.