Meaning
A specialized liability coverage protects retired directors, officers, and companies from claims arising from past actions after the business has been sold or closed. This runoff insurance policy covers claims made during a multi-year window after the corporate transaction closes, provided the alleged wrongful acts occurred before the closing date. It provides peace of mind to executives who are no longer active in the firm.
Transaction Closure
Buyers often require sellers to purchase this coverage as a condition of the acquisition agreement. A runoff insurance policy ensures that any pre-closing liabilities are handled by the insurer rather than the buyer or seller. This separation allows the seller to distribute the transaction proceeds to shareholders without holding back reserves.
Coverage Duration
Standard policies are written for a non-cancelable six-year period to align with statutes of limitations. The runoff insurance premium is paid upfront as a single lump sum.
Claims Resolution
Former directors rely on this coverage to handle legal defense costs and settlement demands from old contracts or decisions. Without runoff insurance, these individuals would have to pay for legal representation out of their own pockets. The insurer manages the investigation and legal proceedings according to the terms of the original policy.
This protects personal estates from being depleted by lawsuits filed years after retirement.
