$1M Professional Liability (E&O) Insurance for M&A Advisors

For M&A advisory firms: a $1M requirement means your Professional Liability (E&O) policy pays up to $1M per claim for covered advisory work.

What does a $1M requirement mean for M&A advisors?

Professional Liability (E&O, short for Errors and Omissions) covers claims that your advice or services caused a client a financial loss. For an M&A advisor, that can be a valuation or a deal detail that went wrong.

A typical clause looks like this:

• Per claim: the most the policy pays for any one claim. Here, $1M.
• Aggregate: the most the policy pays for all claims in one policy year. Here, $2M. A $1M/$1M policy does not meet this clause.
• Claims-made: the policy covers claims made and reported while it is active, for work after the retroactive date (the earliest work date the policy covers). See claims-made vs. occurrence.

Who asks M&A advisors for $1M?

M&A advisors may see a $1M requirement from:

• Private equity firms and other investors that hire you for buy-side work.
• Larger advisory firms that bring you in as a co-advisor or subcontractor on a deal.
• Some founders and family owners selling their company, usually through a clause their counsel adds to the engagement letter.

Some clients, such as buyers on larger deals or those asking for a fairness opinion (a written view on whether a deal price is fair), may ask for a higher limit. See $2M Professional Liability for M&A advisors.

How is $1M built?

At $1M, the limit is usually one primary policy (the policy that pays first), with no excess layers (extra policies that sit on top of it). M&A advisors who do not sell securities often buy a Miscellaneous Professional Liability form. Registered broker-dealers and investment advisers often buy a different, dedicated program. A commercial umbrella almost never covers Professional Liability, and clients usually cannot be added as an additional insured (a company added to your policy so it also covers them), and where an insurer does allow it, the terms are often narrow. Many clients accept a certificate of insurance (a one-page proof of coverage) instead.

Valuation, opinion, capital-raising and securities-related work often needs a full application and a broker. Morrow can help you find it.

What will underwriters ask for?

An underwriter is the insurer's person who decides whether to offer coverage. For M&A advisors, they usually ask about:

• Your mix of work (sell-side, buy-side, valuations, opinions, capital raising) and revenue share from each.
• Deals closed per year, typical deal size and your largest deal.
• Any securities licensing, or ties to a broker-dealer, and which activities run through it.
• Headcount, and prior claims or incidents.

What affects the cost?

• Services. Valuations, opinions and capital raising can cost more than buy-side search work, because a client may point to your numbers or opinion after a deal.
• Revenue and deal size. Bigger deals mean bigger possible losses.
• Claims history. Prior claims can raise the price or narrow options.
• Aggregate and retention. A higher aggregate usually costs more. A higher retention (what you pay on each claim before the policy pays) usually lowers the premium.

Frequently asked questions

Do I need $1M Professional Liability (E&O) as an M&A advisor?

Often, when your engagement letter or agreement requires it. Some firms also carry it because a client, co-advisor or a firm they are affiliated with asks for it. Check your own contract and any other requirements that apply to you. Send Morrow the insurance section of your agreement and Morrow can review it and request quotes.

What claims could an M&A advisor face?

Claims usually allege that advice or a valuation caused a financial loss. Hypothetical examples: a seller says your valuation was too low. Or a buyer says you missed a key customer contract in due diligence (the buyer's check of the target company). A covered policy may pay to defend you, even if you did nothing wrong.

Is $1M enough if my M&A engagement letter asks for more?

No. If the contract asks for more than you carry, the policy does not meet it. Say you have $1M/$1M and the letter asks for $1M/$2M. Morrow can request quotes for $1M/$2M and ask insurers to keep your retroactive date and prior acts coverage (cover for past work before the new policy starts) where the market allows. Keep your current policy in force until the new one starts, and report anything that could become a claim to your current insurer first. Clients may ask for $3M or more on bigger deals (see $3M for M&A advisors).

Do I still need coverage after a deal closes?

Often, yes. Sale claims can come years after closing, and your contract may require coverage for a set period. Renewing without a gap usually keeps past work covered if the retroactive date stays the same. If you stop or switch coverage, you may be able to buy an extended reporting period (a "tail") from the expiring insurer. The time to elect a tail is usually short, often 30 to 60 days after the policy ends, so ask before the policy expires. Tail lengths vary by policy, and many offer multi-year options.

This article is general information, not legal advice or a coverage determination. Coverage depends on the actual policy wording, carrier underwriting and your contract terms.