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As companies seek growth through mergers and acquisitions with complex environmental liabilities, one mitigation option is buying environmental liability insurance.
“The solutions are out there in the market to help you manage that risk on both the buy side and the sell side,” said Craig Richardson, Alpharetta, Ga.-based senior vice president of Ace USA's environmental risk practice. “It's just a matter of the risk manager understanding that there are solutions in the form of insurance policies.”
Such coverage often speeds M&A talks by removing a common stumbling block, said Seth Gillston, executive vice president of Ace's USA's M&A practice in New York. “Having a policy in place can put a cap on an exposure and lower the potential for dispute over valuation,” he said.
Merger-specific policies have become more important as private equity firms buy portions of larger companies and, in the process, change the unit's ability to absorb environmental risk, Mr. Gillston said.
“While the conglomerate could self-insure an environmental risk on its own, it probably makes sense for the smaller company to go out and secure an environmental policy at a much different retention level,” he said.
When it comes to mergers and acquisitions, risk managers' help in assessing and mitigating exposures is particularly important where environmental risks are concerned.