Contingent Risk Insurance

Contingent Risk Insurance provides cover to offset the risks associated with specific and identified contingent liabilities that are capable of legal and/or accounting analysis. While Warranty and Indemnity (W&I) and Representations and Warranty (R&W) insurance is there to cover unknown risks, Contingent Risk Insurance is there to cover certain known matters.

Contingent Risk Insurance can be used in the context of an M&A transaction and also for other investments, restructurings or financing transactions. It offers insurance for a broad range of contingent risks for which neither party is willing to stand behind. The insurance transfers a known or uncertain contingent liability from a company’s balance sheet to an insurance company.

Such insurance can be put in place prior to a transaction process to isolate risks in portfolio companies that can thereby allow sellers to address issues before commencing a sale process and present a buyer with a prepared solution. Alternatively, it can be used as part of an ongoing transaction process when an issue has been identified as part of the due diligence exercise. They can also be used for stand-alone risks with no connection to a transaction as part of a prudent risk management strategy.

Contingent Risk Insurance is tailored to the specific circumstances of the risk in question and typically offers coverage for risks such as:

  • Legal interpretation risk
  • Pension associated risks
  • Shareholder disputes
  • TUPE disputes
  • Specific accounting treatment
  • Environmental risks
  • Regulatory exposures

Any party to the risk (provided they can show they have an insurable interest) can be insured. Sellers often purchase coverage in order to ring fence the risk in question. Buyers also look to take out these policies in the event they would be the party suffering the loss if the contingent risk arose. Other parties such as lenders, liquidators and investors may also require protection to protect their interests.

Putting in place a Contingent Risk Insurance policy requires a formal risk analysis, and for those matters with a more specific legal interpretation, then a legal opinion from a reputable law firm with expertise in the subject matter of the risk in question which:

1. Sets out the factual background and the commercial rationale to insure the risk;

2. Analyses the applicable law and/or regulation;

3. Analyses and quantifies the loss that may be suffered should the risk crystallise: and

4. Provides a conclusion as to the likelihood of the risk crystallising.

Contingent risks are typically low in probability but can have significant damaging consequences for a business. Given this there is a wide disparity when it comes to pricing which is determined by insurer appetite, severity, jurisdictions involved and complexity. Premium rates historically can typically vary between 4-15% the policy limit.

Pawar Tan

Tan Pawar

Head of Private Equity and M&A

T: +44 (0)20 7480 0264
M: +44 (0)7341 133 007
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Andrews Dean

Dean Andrews

Executive Director, Head of Tax and Contingent Liability Insurance

T: +44 (0)20 7480 0308
M: +44 (0)7876 815 643
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Wallace Sophie

Sophie Wallace

Director

T: +44 (0)20 7480 0378
M: +44 (0)7824 605 613
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Matthew Gillam

Director

T: +44 (0)7353 097 262
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Kemp Simon

Simon Kemp

Group General Counsel

T: +44 (0)20-7480-7288
M: +44 (0)7825-844-988
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Matthew Grice

Divisional Director

M: +44 (0)7776 568 847
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William Banks

Associate Director, Secondaries

M: +44 (0)7353 097 250
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Rian Bahia

Associate Director

M: +44 (0)7823 672 455
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Kanwar Chandini

Chandini Kanwar

Associate Director

T: +44 (0)20 7374 5990
M: +44 (0)7825 421 394
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Marcus Christie

Associate Director

T: +44 (0)20 7374 5937
M: +44 (0)7826 532 908
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UK

One America Square
London EC3N 2LS
United Kingdom

T: +44 (0)20 7480 7288

FREILICH eric

Eric Freilich

Director, Legal Counsel, Private Equity and M&A

M: +1 647 533 9699
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Allen logan

Logan Allen

Director, Private Equity and M&A

M: +1 416-722-8171
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Toronto

161 Bay Street, Suite 4140,
Toronto, ON M5J 2S1

Lee Sandra

Sandra Lee

CEO & Head of PEMAT, Asia

T: +852 3579 5485
M: +852 9255 7088
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De Lange Martijn

Martijn de Lange

Managing Director - PEMAT

T: +852 3579 5486
M: +852 9772 9951
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Jayasundara Nelumi

Nelumi Jayasundara

Senior Associate - PEMAT

M: +852 9801 3916
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Hong Kong

20/F Leighton Centre
77 Leighton Road
Causeway Bay
Hong Kong

Godden Andrew

Andrew Godden

Chief Executive Officer - Australia

M: +61 (0) 432-805-729
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Sydney

Level 3,
222 Clarence Street,
Sydney NSW 2000

T: +61 (2) 9165 3511

Ong Rae

Rae Ong

Business Development Lead - PEMAT

M: +65 9783 5566
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Ryan Heng

Director - PEMAT

M: +65 8792 6334
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Ryan Soh

Associate - PEMAT

T: +65 9792 5282
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Singapore

61 Robinson Road,
#09-05,
Singapore 068893

T: +65 6018 0537

Claro Fernando

Fernando Claro

Chief Executive Officer, Iberia

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Schmitz Kai

Kai Schmitz

Head of Tax Insurance – Iberia

M: +34 672 334 459
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Ricardo Lecaro

Ricardo Lecaro Manrique

Head of M&A Insurance – Iberia

M: +34 677 741 647
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Madrid

Paseo de la Castellana 28, entreplanta
28046 Madrid

T: +34 91 419 76 40

Yongtak Lee

Yongtak Lee

CEO & Managing Director

T: +82 2 6405 1021
M: +82 10 3110 2807
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Cha Chloe

Chloe Cha

Associate Director

T: +82 2 6405 1021
M: +82 10 7164 7071
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Seoul

S-Tower Kwanghwamun Co-Workers,
Sinmun-ro 1-ga, #1818 18F,
82 Saemunan-ro, Jongno-gu,
Seoul 03185

T: +82 2-723-1800

Schmitz Kai

Kai Schmitz

Head of Tax Insurance – Iberia

M: +34 672 334 459
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Ricardo Lecaro

Ricardo Lecaro Manrique

Head of M&A Insurance – Iberia

M: +34 677 741 647
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Miami (US)

800 Brickell Avenue
Suite 350, Miami, Florida 33131

T: +1 786-581-1896

Hewitt Tim

Tim Hewitt

Head of BMS Japan/ Managing Director

M: +81 70 9127 2075
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Tokyo

Pacific Century Place 13F,
1-11-1 Marunouchi,
Chiyoda-ku,
Tokyo