Insurance for private equity firms

A private equity sponsor plays several roles at once: manager of its funds, owner of its portfolio companies, and often a director on their boards. Its insurance has to keep up with all of them, and with every deal. An acquisition adds entities and board seats. An exit raises the question of who covers claims about what happened before the sale.

Cilantro Risk is an insurance broker for private equity sponsors. We sort out which policy covers which role, and keep the program up to date through each transaction and renewal.

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Sponsor coverage and portfolio company coverage

Your firm’s program and each portfolio company’s program do different jobs. The sponsor’s covers the management company, the funds, and your people. Each portfolio company should carry its own D&O for its own board and officers. When your partners sit on a portfolio company’s board, both programs can be drawn into the same claim.

We map who is covered where, which program pays first, and whether your policy covers the services you provide to portfolio companies. Where there’s a gap, we tell you and propose a way to close it.

Coverage that keeps up with your deals

Most D&O policies stop covering new events once a company changes hands. From that point the existing policy usually goes into run-off, meaning it only covers claims about what happened before closing, and a new policy takes over for everything after. This is easy to arrange before closing and hard to fix afterward.

Tell us the signing and closing dates and we’ll work to that timetable. We read the insurance sections of the deal documents, help arrange the run-off and the new policy, and coordinate with your deal counsel.

More policies doesn’t always mean more coverage

A program can list several policies and limits without all of them being available for one dispute. Legal fees usually come out of the same limit that pays settlements. Several entities often share one limit. Some policies include clauses that stop you from collecting under two policies for the same claim. The Bruckmann, Rosser, Sherrill case below shows how that played out for one firm.

Before you rely on a program, we check:

Which entities and people share each limit
How much of the limit legal fees can use up
Whether related claims can be tied together across policies or years
Who decides how to defend a claim and whether to settle

How we work with sponsors

Send us your current program, an entity chart, your deal timetable, and a list of outside board seats. We read the policies, tell you what you have and where the gaps are, and go to insurers for terms that fit.

We also cover the firm as a business. Its bank accounts, data, employees, and benefit plans are addressed by cyber, crime, employment practices, and fiduciary coverage.

What happens when the coverage doesn’t fit

Having insurance doesn’t settle what it covers. The public court record below involves other firms, not Cilantro clients, and each outcome depended on its own facts, policy language, and governing law.

Bruckmann, Rosser, Sherrill & Co. v. Marsh USA

A private equity firm settled a lawsuit and then sought more insurance money than it had received. The dispute was about whether the limits of two policies could be combined.

The 2011 New York opinion records a $33.5 million settlement, $6.9 million in legal fees that came out of the policy limits, and $20 million paid by insurers in total. The court enforced clauses that prevented the two limits from being added together. It did not make a final finding that the broker was negligent.

What we check for you: Whether your policies can be combined, and how much of each limit legal fees can use up, before you count on the total.

New York Appellate Division opinion, June 28, 2011

Common questions

Does the sponsor’s insurance cover its portfolio companies?

No. Each portfolio company needs its own program. The sponsor’s policy covers the sponsor, its funds, and its people, including their board service to the extent the policy says so.

Will the policy cover a regulatory inquiry?

It depends on the stage. An exam, a document request, and a formal proceeding can each be treated differently, and many policies cover only some of them. We’ll show you where your policy draws the line.

Can you work to a deal timetable?

Yes. Send us the full policy forms and endorsements along with any proposal summaries, and tell us the closing date. We’ll flag anything that needs input from your deal counsel.

Talk to us about your insurance

Tell us about your business, what you’re trying to decide, and any deadline. We’ll follow up to set up a call. You don’t need to upload anything now.