Specific Contingency Insurance
Information

Ambridge recognizes that every company and every transaction is different and not every contingent liability may be adequately addressed by one or more of Ambridge’s other specific Transactional Insurance products, such as AppealGap® Contingency Insurance, AvoidanceGap® Contingency Insurance, DisclosureGap® Representations & Warranties Insurance and InterpretationGap® Tax Insurance.

As a result, Ambridge offers its Specific Contingency Insurance product, which is designed to respond to “one-off” legal, judicial and legislative risks that serve to inhibit or prevent completion of a wide variety of transactions, or leave one or more parties to such transactions with a greater risk exposure than they desire.

As with the other Ambridge Transactional Insurance products, Specific Contingency Insurance can be written with significant limits of liability, policy terms of up to seven (7) years and include enhancements such as having a lender as a “loss payee”.

Regardless of the situation that requires certainty with respect to a specific contingent liability, Ambridge’s experienced underwriting team will work with you to provide your clients with the Specific Contingency Insurance solution they require.

Uses by Deal Point

Some examples of where Specific Contingency Insurance is responsive include:

  • Potential challenge to position taken regarding amounts due under a contract
    An investor is in the process of considering a significant strategic investment in a financially distressed company. The company recently terminated a material contract and has taken the position that there are no further amounts due under the terms of the contract. While the counterparty to the contract has not made a demand for payment, the investor is concerned that the publicity surrounding the cash infusion may lead such counterparty to file a claim for contractual damages. As a condition to receiving the investment, the company purchases a Specific Contingency Insurance policy to respond to any claims for contractual damages by the counterparty to the recently terminated contract.
  • Potential challenge to compliance with zoning laws
    Lawyers conducting due diligence for buyer of a group of buildings have highlighted the fact that several key tenants of the buildings conduct businesses that may fall outside of the type of activity for which the buildings are zoned. As several of these tenants are paying above-market rents, the buyer is concerned about the impact of a reduction in rent stream if one or more of the tenants are no longer able to conduct their businesses in the buildings because of a challenge by the relevant authorities. The owner of the buildings purchases a Specific Contingency Insurance policy, which is assignable to the buyer at closing, to respond to any losses incurred as a result of any challenge by the relevant authorities.
  • Potential mismatch between two indemnities
    The target company in an acquisition has outsourced to a subcontractor most of the services to be provided under a major contract to one of its key customers. The subcontractor has provided the target company with an indemnity for certain losses arising out of the services that it has provided under the contract. The company has in turn given its customer an indemnity covering these services. The potential acquirer believes that there is a mismatch between the two indemnities and believes that the target company's obligations under the indemnity provided to the customer are broader than the indemnity that it receives from the subcontractor. The financial impact of this potential mismatch has caused the potential acquirer to request an indemnity from the sellers which is not available given their financial condition. In order to close the transaction, a Specific Contingency Insurance policy is purchased to respond to any losses incurred as a result of a claim from a customer that is not in turn the subject of the indemnity provided by the subcontractor.
  • Potential impact of a change in law on future income of target
    Given the political environment, the potential purchaser of a package of certain loans is concerned about the impact on the future income stream emanating from the purchased assets in the event that there is a change in law which eliminates the ability to charge certain recurring fees on the loans. The potential purchaser is unwilling to proceed without some form of an indemnity for this loss of income. The seller is not prepared to offer any form of indemnity. A Specific Contingency Insurance policy is purchased by the purchaser to respond to any losses incurred in the event of the applicable change in law.
Uses by Transaction Type

Potential uses of the product include:

  • Financings & Investments

    Potential impact of a change in law


    A United States company has prepared to enter into a long-term contract with a foreign entity. Fulfillment of this contract will require that the United States company make significant capital investment in plant and equipment. The contract contains a provision that allows the foreign entity to cancel the contract in the event of certain changes in the law. The United States company is unwilling to execute the contract unless it can gain protection against a loss of its capital investment resulting from cancellation of the contract due to a change in the law. The United States company purchases a Specific Contingency Insurance policy to respond to losses incurred in the event there is a change in the applicable law.
  • Licensing Agreements

    Potential mismatch between two indemnities


    A licensee uses intellectual property licensed from a licensor in a product that it sells to a customer. The customer requires an indemnity from the licensee for any patent infringement claims that are made against it by any third parties as a result of its use of the licensor's embedded intellectual property. Given the existence of the indemnity in its favor from the licensor (which has significant financial resources), the licensee willingly provided the requested indemnity. During due diligence in connection with a loan required by the licensee, lawyers for potential lenders determine that certain parts of the indemnity given to the customer are broader than the indemnity given to licensee by the licensor. Given the limited financial resources of the licensee, absent a solution, the lender is not prepared to take the risk that the licensee may not be able to recover all amounts paid under the indemnity it has given in favor of the customer from the licensor. As a condition to closing on the loan, the licensee purchases a Specific Contingency Insurance policy to respond to any losses incurred as a result of a claim from the customer that is not in turn recovered from the licensor. The lender is added to the policy as a "loss payee".
  • Liquidations

    Potential liability preventing fund liquidation


    One of a private equity fund's portfolio investments became insolvent eighteen months after being acquired by the fund. In contentious bankruptcy proceedings, the private equity fund and its general partner were named in protracted litigation as the controlling persons of the portfolio company. The litigation was settled and releases were exchanged between most parties. There were parties to the litigation however, that could not be found and did not sign releases. The fund's general partner is unwilling to permit liquidation of the fund because of concerns about claims being made against the fund by the "non-releasing parties" as respects the matters for which all other parties have provided a release. A Specific Contingency Insurance policy is purchased by the general partner to respond to claims brought by the "non-releasing parties" relating to the litigation, allowing the fund to liquidate.
  • Mergers & Acquisitions
    Under construction / Coming soon
  • Restructurings & Workouts

    Potential claims made by disserting shareholders


    An over-leveraged company is in the process of restructuring its debt in a manner that will result in substantial dilution of equity to the existing shareholders. For various reasons, the restructuring is being concluded without the approval of the relevant bankruptcy court. The equity and debtholders of the company that have agreed to the terms of the restructuring require an indemnity in the event that they are sued by shareholders/debtholders who did not vote in favor of the restructuring. The restructuring entity is unable to provide such an indemnity. A Specific Contingency Insurance policy is purchased to respond to any claims by any dissenting or abstaining shareholders/debtholders against any shareholder/debtholder that voted in favor of the restructuring.
FAQs

FAQs:

  • What type of underwriting submission does Ambridge need in order to consider a Specific Contingency Insurance risk?
    Given that our Specific Contingency Insurance risks tend to be "one-off" risks, we suggest that you call us to discuss the risk before making a submission. We can be most responsive to your request if you are able to provide:
    • a description of the risk for which coverage is sought;
    • the reason that insurance for the risk is required; and
    • any analysis that has been undertaken by the client or its professional advisors relating to the risk to be insured.
  • Will Ambridge consider Specific Contingency Insurance risks in any jurisdiction in which the potential risk might arise?
    While Ambridge's primary focus is on Specific Contingency Insurance risks that are based or may arise in the United States, the European Union, Australia, Canada, New Zealand and South Africa, we can consider risks in many jurisdictions. Ambridge's Specific Contingency Insurance product is not available in all jurisdictions.
  • Is Ambridge’s Specific Contingency Insurance product available to cover financial or performance guarantees?
    While Ambridge cannot provide coverage for financial or performance guarantees, we do have the ability to consider writing Specific Contingency Insurance policies for legal, judicial or legislative risks that only respond if the indemnitor under an indemnity for the "insured risk" becomes financially unable to, or fails to, perform under its indemnity. Unless coverage is desired on a "multiple trigger" basis, we cannot consider policies which involve financial or performance guarantees.
  • How long does it take Ambridge to perform a preliminary review of a Specific Contingency Insurance submission?
    That depends on the nature and complexity of the risk for which insurance is sought. Ambridge is committed to providing you and your clients with "real time" insurance solutions for their transaction related exposures and will make every effort to respond within the time frame required by your client.
  • Certain provisions of Ambridge’s template Specific Contingency Insurance policy are not applicable to my client’s circumstances. Can the template policy be amended to remove or amend these provisions?
    Each Ambridge Specific Contingency Insurance policy will be tailored to the specifics of the risk to be insured and an insured's specific circumstances. Once an initial proposal has been provided to you, please contact us with any provisions that your client wishes to have removed or amended so that we can consider your request.