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No matter what
you protect:
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DUE DILIGENCE CHECK LIST
Some insurance items, if undetected,
may raise your client's "cost"
and lower your comfort level.
Workers' Compensation - Insured Programs
Retrospective Adjustments: The insured and insurance company enter into an agreement to adjust separately individual policy periods until settlement of all corresponding claims. This could result in additional premium payments each year - for each policy period - if the accumulated paid and reserved losses increase. (Note: The reverse is also true. If paid and reserved losses decrease, the insured receives return premium.)
Experience Modification: Experience modifiers determine what insureds will pay in premiums, based on their past three years of developed experience. All states use one experience modifier except California, Pennsylvania and New Jersey. These three states establish their own. (Note: If a purchased company has a lower experience modifier, while a new parent - acquiring - company has a higher one, the purchased company automatically takes on the higher rate of the new parent. The reverse is also true.)
Workers' Compensation - Self-Insured Programs
Loss Reserves: Reserves are funds set aside for future payments of known claims. They are reviewed periodically and adjusted as needed. (Note: Self-insured workers' compensation programs and captive insurance companies' reserves are frequently under reserved.)
Products Liability
Discontinued Products: A hidden yet potentially substantial exposure to a purchased company's discontinued products may exist.
Past Products - still in use: Purchase agreements need to stipulate whether this exposure will remain with the seller or transfer to the buyer.
Prior Products - coverage written on a claims-made basis: If prior insurance was on a claims-made basis, there may be no coverage for losses that actually occurred during a policy period, but were not reported until after expiration.
Liabilities Assumed Through Contracts
Products,
Services rendered,
Leases (real property, equipment).
Self-Insured or Uninsured Areas
Environmental liability exposure,
Products liability exposure,
Fiduciary liability exposure,
Crime exposure,
Employment practices liability exposure.
Prior Insurance - Purchased Entity
Inadequate limits,
Coverages written on a claims-made basis,
Ability to assign prior coverage to the new owner.
Loss of Favorable Insurance Rates
The cost of insurance to cover a purchased entity may increase or decrease depending upon the acquiring company's type of business and size.
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