Specific Contingency Insurance (SCI) is designed to provide coverage for known and specific issues that arise between the buyer and the seller during negotiation of a merger or acquisition.
Often the buyer and the seller will take vastly different views on the likelihood and financial impact of the event. For example, the seller may be involved in a litigation dispute that will not be resolved until long after the closing of the contemplated transaction. This forces both parties to evaluate the likelihood of prevailing in the case, and the potential economic impact of a loss on the company. Naturally, the seller will seek to minimize potential losses, while the buyer will take a more risk-averse view of the situation. Resolution of the matter therefore becomes challenging.
This is where SCI can help facilitate a mutually acceptable solution. The purchase of an SCI policy indemnifies the buyer from the financial impact of a specific contingency, thereby converting a contingent liability into a certain (and often deductible) expense.
Examples of the types of issues covered by SCI are:
- Environmental Issues
- Tax Disputes
- Specific Indemnities
- Successor Liability