Deal Point: A foreign buyer is contemplating the purchase of a U.S. domiciled company. All terms of the transaction have been agreed to with the exception of one tax issue. The potential purchaser is requiring that a $40,000,000 escrow fund be established to respond to a tax issue that has been settled at the examining agent level. The agreed to settlement has been resolved with the target company paying $2,000,000, but this settlement must still be submitted to the joint committee on taxation in Washington, DC for final approval. One of the potential purchaser’s biggest concerns in investing in the US is its unfamiliarity with the US tax process. Therefore, its board will not approve the transaction unless it receives the required escrow for this tax issue. The seller is only willing to agree to an escrow of $5,000,000 due to its view that the exposure for this issue is minimal.

Transactional Insurance Solution: A $35,000,000 Tax Insurance Policy is issued to apply excess of the $5,000,000 escrow the seller has agreed to provide to indemnify the buyer for this particular tax issue in the event that the liability relating to this tax issue exceeds the $2,000,000 amount agreed to with the examining agent.