Nothing illustrates the importance of managing risk more than a recent case of Bruckmann, Rosser Sherrill & Co., L.P. v. Marsh USA, Inc. In this case plaintiff BRS (a private equity firm) discovered that due to a provision in their D & O policy they would not have full access to the limits of liability they purchased to pay a settlement. This limitation occurred due to the inclusion of what is commonly called a “tie-in” provision, also referred to as an “anti-stacking” provision on Bruckmann’s D & O policy.
This case dramatically illustrates complex issues that must be addressed when coordinating insurance programs between a private equity firm and one of its portfolio companies when both parties are covered with the same insurer. It also demonstrates the financial impact a company that is lacking appropriate risk management safeguards can face when provisions are invoked.The D & O marketplace consists of a number of insurance carriers with policy forms that can vary greatly. Although the majority of these carriers have a good knowledge of their product, their goal is to represent the insurer and not be an advocate for the insured.
When it comes to the issues of dealing with policy forms and the unique relationship that exists between private equity and their investment in portfolio companies, an independent risk management and insurance consulting firms like The ALS Group can help mitigate and lower your Total Cost of Risk (TCoR).
