Runoff insurance is a key component of many corporate acquisitions and mergers. It can provide protection against long-term liability exposure that can be associated with any transaction. By transferring legal liability to a third party, runoff insurance minimizes the costly, and potentially lengthy, process of managing the resolution of legal claims.

Runoff insurance is thus a type of claims-made liability insurance that applies to companies that have merged or ceased operations. When a runoff policy is activated, it is typically in effect for multiple years. The period of coverage may also be tailored to meet the needs of the particular circumstances in which the policy is being issued.

In essence, runoff insurance provides coverage through a period of time after the policy is in effect. This means that it will remain active until the period of coverage expires. It is not an occurrence-based policy such as a traditional liability policy in which the protection ceases once an event takes place.

For example, runoff insurance may protect a buying company for legal claims made against a previously owned company for years after the policy is active. This provides an acquiring company with valuable peace of mind that financial assets insured are safeguarded from potential long-term liability. This can be particularly beneficial for companies that operate in industries with a high potential for legal disputes during or after the process of completing a merger or acquisition.

By providing protection for a longer period of time, runoff insurance allows a company to be proactive and take steps to protect its financial well-being. Without this policy, a company would face the potential of incurring significant costs associated with litigating any legal claims that could arise after an acquisition. The cost of such coverage varies greatly depending on the specific needs and risks of the acquiring company.

All in all, runoff insurance can be an invaluable tool for companies that are going through the process of completing a merger or acquisition. By providing a certain amount of protection for a set period of time, runoff insurance can be a cost-effective solution for mitigating legal claims and potential liability exposure. With a runoff policy in place, an acquiring company can rest assured that any legal claims outside the scope of the policy are covered for the duration of the policy’s coverage period.