Consolidating Insurance Across Add-On Acquisitions

Consolidate each add-on's insurance with the same six steps, every time. Review what it carries, cover it from closing day, align its renewal dates with yours, move it onto your master program, handle old claims and any tail coverage (extra time to report claims) on its old policies, and update certificates, contracts and lenders. Done in that order, the steps help keep the add-on covered during the move and lower the chance that an old claim falls into the gap between its old policies and your program. Coverage still depends on what each carrier binds and on the policy wording. This guide is for holding company and platform owners doing their second, third or tenth acquisition.

What does the add-on insurance playbook look like?

Whether the add-on should join the master program at all is its own decision, with trade-offs around shared limits, loss history and exit flexibility. See one insurance program vs separate policies. This playbook assumes you have decided to consolidate.

What should you review before the add-on closes?

Ask the seller for the same package you would want for a first acquisition: declarations pages and full policies, five years of loss runs (the carriers' claim reports), the workers' compensation experience mod worksheet, a list of open claims, the vehicle and property schedules, and the insurance sections of key customer contracts, the lease and any loans. Note three things for every policy: renewal date, whether it is written on an occurrence or claims-made basis, and how it handles a change in ownership.

Two findings change the plan. First, any claims-made policy (common for professional liability, employment practices, cyber and directors and officers coverage) needs a decision about tails and retroactive dates before closing. Second, contract requirements the add-on meets today, such as specific additional insured wording or limits, must still be met after it moves onto your program. The pre-closing insurance checklist covers the document list in detail.

How do you make sure the add-on is covered from closing day?

Get the coverage bound in writing before closing: a binder, endorsement or policy from the carrier, not a quote or an application. In a stock purchase, the add-on's own policies usually continue, subject to change in control provisions and notice duties in each policy. In an asset purchase, the buyer's entity needs coverage of its own at closing, because the seller's policies generally cannot be transferred without the insurer's written consent.

Some policies give automatic coverage to newly acquired companies, but it is narrow. Under the standard Insurance Services Office (ISO) general liability form, it lasts until the 90th day or the end of the policy period, whichever comes first, and it does not apply to limited liability companies, partnerships or joint ventures. It also applies only when the acquired company has no other similar insurance, so it usually does nothing in a stock deal where the add-on's own policy continues, and it never covers injury or damage that happened before the acquisition. Carrier forms vary widely, and the standard business auto form has no such provision. Treat any automatic window as a stopgap. The detailed steps are in adding a newly acquired company to your existing policies.

How do you align renewal dates?

One renewal date for the whole group cuts admin and gives you a single, larger account to market. How you get there depends on the deal. In a stock purchase, the add-on's own policies usually continue, so you choose among the options below, and each has a cost. In an asset purchase, the seller's policies generally stay with the seller and do not cover your entity. The coverage you bind for closing can often be written to end on your platform's date, or the add-on can join your program from day one, so these options rarely arise. The options below assume a stock purchase.

A hypothetical example. Your platform renews January 1. In June you buy an add-on's stock, so its own policies continue, subject to their change in control terms. Its annual general liability policy of $24,000 renews September 1. Cancelling in June and rewriting into your program might return somewhat less than the unused share of premium (a short-rate refund), depending on the policy, the carrier's filings and state rules. Letting the policy run to September 1 and then adding the add-on to your platform policy by endorsement for the four months to January 1 avoids any short-rate penalty, and endorsement premium is often close to pro rata. A standalone four-month policy is the fallback if your carrier will not take the add-on, and it may cost more than a third of $24,000. Ask for the options in writing and compare total cost, not just premium.

In an asset deal, the seller's policies stay with the seller, who decides when to cancel them and receives any refund. Whether that is adjusted between you is a purchase agreement question for deal counsel. See minimum earned premium.

When should the add-on move onto the master program?

Move it when the coverage is at least as good as what the add-on had, the exposures are rated correctly and the timing does not waste premium. Before you schedule it, check these points:

• Class codes and exposures. Add the add-on's payroll, revenue, vehicles and property values under the right classifications so audits do not bring surprises.
• Shared limits. Adding a company to your program usually means it shares the same aggregate limits. Check whether the umbrella and the per-location or per-project aggregates still fit the larger group.
• Umbrella underlying schedule. Many umbrellas only sit over policies listed in their schedule, so the add-on must be on the scheduled underlying policies.
• Workers' compensation. Under National Council on Compensation Insurance (NCCI) rules, companies with more than 50 percent common ownership are combined into one experience mod whether or not they share a policy. Some independent bureau states and the monopolistic state fund states (North Dakota, Ohio, Washington and Wyoming) apply their own rules, so confirm how each state treats your group.
• Contract wording. Confirm your program's additional insured and waiver of subrogation endorsements meet the add-on's customer contracts.

What happens to claims from before the add-on joined your program?

The add-on's old policies keep doing work after the move, so do not lose track of them.

• Occurrence policies generally respond to covered injury or damage that happened during their policy period, even if the claim comes years later, subject to their terms and limits. Keep copies and carrier details, especially for completed work or products. In an asset purchase, whether your company can claim under the seller's old occurrence policies depends on the deal structure and state law, so ask deal counsel.
• Claims-made policies generally respond only to claims first made (and, under many forms, reported) while coverage is in force, for acts after the retroactive date. When the add-on moves to your program, either your carrier keeps the add-on's original retroactive date (the earliest date of acts covered) or someone buys a tail, an extended reporting period on the old policy. Retroactive dates for an acquired company are an underwriting decision, so get them in writing. See prior acts and tail coverage.
• Open claims stay with the carrier that was on risk. Assign someone at the add-on to work with that adjuster, and keep the claim on your internal tracker. In an asset purchase, open claims against the seller's entity usually stay the seller's responsibility unless the purchase agreement says otherwise; agree in the purchase agreement who handles them and what cooperation you owe.

Who needs to hear about the change?

A Morrow review can map each add-on's policies against your program and draft the renewal alignment plan. Any new terms depend on carrier underwriting.

Keep reading

• Adding a Newly Acquired Company to Your Existing Policies
• One Insurance Program vs Separate Policies per Company
• Insurance for Holding Companies and Roll-Ups
• Prior Acts and Tail Coverage After an Acquisition: Who Pays?
• Total Cost of Risk for Small Holding Companies
• All guides for new business owners

Frequently asked questions

Is my add-on automatically covered under my existing policies?

Not reliably. Some policies give limited automatic coverage to newly acquired companies, but under the standard general liability form it ends at 90 days or the end of the policy period and excludes limited liability companies. Get the add-on added as a named insured by a bound endorsement or new policy, effective at closing.

Should I cancel the add-on's policies right after closing?

Usually not without comparing the options. In a stock purchase, cancelling mid-term can return less than the unused share of premium, and running a policy to expiry, then adding the add-on to your program by endorsement or bridging with a short-term policy, can cost less overall. In an asset purchase the seller's policies generally do not cover your entity, so you need your own coverage at closing, and what happens to the seller's policies is a deal term.

Who handles claims from before the acquisition?

Usually the carrier that was on risk when the injury happened (occurrence policies) or when the claim was first made (claims-made policies), subject to the policy terms. In a stock deal, open claims generally stay with the old carrier, and someone on your team should work with the adjuster. In an asset purchase, open claims against the seller's entity usually stay the seller's responsibility unless the purchase agreement says otherwise, and whether your company can use the seller's old policies depends on the deal structure and state law, so ask deal counsel.

Do I need to tell anyone about the change in ownership?

Yes. The standard workers' compensation endorsement used in NCCI states and several others requires reporting an ownership change within 90 days. Lenders, landlords and customers with insurance requirements also need updated certificates and endorsements.

How long does consolidating an add-on usually take?

Coverage at closing should be in place on day one. Full consolidation often waits until renewal dates line up, which can take most of a year. Plan the steps at closing to avoid coverage gaps in between.

References

• ISO: Commercial General Liability Coverage Form CG 00 01, 12 07 edition (carrier-hosted copy; the newly acquired organization wording is reported to be the same in the 04 13 edition)
• ISO: Common Policy Conditions IL 00 17 11 98 (carrier-hosted copy)
• IRMI: Short-rate cancellation definition
• IRMI: Extended reporting period definition
• NCCI: Experience Rating Plan Manual, Item E-1411 (Texas filing)

This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.