Personal Liability Risks during Insolvent Administrative Entity Strike Off
Insolvent administrative strike off exposes directors to personal liability for corporate debts, misfeasance clawbacks, tax arrears, and disqualification.
Tail Insurance Exclusion
Meaning
Insurance provision that prevents coverage for claims arising from incidents after a specific corporate transaction. This tail insurance exclusion is common in directors and officers liability products during a merger or acquisition. It marks the boundary where the old policy stops protecting the individuals for future acts while continuing to cover past events.
Run Off Protection
Companies buy a dedicated policy to cover the period after the exit to ensure that the board members remain protected for their historical decisions. While the tail insurance exclusion stops new risks from being added, the run off cover provides a multi year window for claims to be reported. This is a central point of negotiation in an exit because departing directors refuse to close the deal without a guarantee of continuing safety.
Financial Impact
Buyers often demand these terms to ensure they are not paying for the future liabilities of the sellers. The tail insurance exclusion clearly separates the two eras of the company life and assigns the cost of historical risk to the outgoing owners. This clarity allows for a more accurate valuation of the business because the insurance premiums for future activities are not bundled with legacy issues.
Policy Wording
Lawyers must carefully review the definition of a claim and the reporting period to ensure no gaps exist between the old and new coverage. If the tail insurance exclusion is too broad, it might leave the company exposed to litigation that sits in the grey area between two management teams. Precise drafting ensures that the transition of risk is absolute and documented in the final purchase agreement.