Unlocking the Potential: Transactional Liability Insurance in Renewable Energy and Clean Technology M&A

The renewable energy and clean technology sectors have experienced significant growth and investment in recent years, driven by the increasing focus on energy transition and the passing of financial incentives legislation. As these industries continue to expand, mergers and acquisitions (M&A) have become crucial for facilitating business transactions, project acquisitions, and technology transfers. A key tool in many M&A transactions, particularly in renewable energy and clean tech, is transactional liability insurance (TLI), which can take the form of representations and warranties insurance (RWI) as well as customized policies covering tax or contingent risks.

RWI, one of the most common forms of TLI, typically replaces or supplements indemnification provided by a seller in a private M&A deal for unknown historical business liabilities that are not discovered in buyer’s due diligence. As the availability of these types of insurance has expanded, it has become valuable in addressing industry-specific concerns.

In this Legal Update, we delve into the nuances of TLI coverage and considerations for buyers and sellers when obtaining TLI in these sectors for M&A transactions. We also provide practical insights into navigating the TLI underwriting process and maximizing TLI coverage.

RWI and other forms of TLI are valuable risk management tools in renewable energy and clean tech M&A deals. The availability of these types of insurance has expanded as deals in these sectors become more prevalent, with customization options to address industry-specific concerns. In addition to the topic-specific insights summarized in the article, buyers should keep in mind the following when working with insurers to craft the best possible TLI coverage.

Parties seeking TLI must be aware of the diligence required to obtain coverage and the limitations of coverage. TLI in these sectors will require a thoughtful, tailored due diligence process by the buyer that is designed to address the underwriting requirements of the TLI insurers. Navigating these complexities requires a deep understanding of the industry and careful negotiation of policy terms to align risks, diligence, and insurance coverage.

Determining the scope of coverage is often a negotiated, iterative process. Buyers should engage with their advisors and insurers as early as possible in the process to get ahead of potential underwriting gaps that may negatively impact the scope of coverage. Many of these gaps can be addressed in some respect if they are identified at an early stage.

Buyers should encourage their TLI broker to work closely with the buyers’ property and casualty insurance brokers to avoid gaps in coverage. TLI underwriters will normally have an interest in confirming the reasonableness and overall strength of a target’s existing insurance coverage and that the transaction will not create too much risk of uninsured claims that would fall to the TLI policy (i.e., prior acts coverage).

In conclusion, TLI is a powerful tool in mitigating risks in renewable energy and clean tech M&A transactions. By understanding the coverage characteristics and considerations when obtaining TLI, buyers and sellers can navigate the underwriting process and maximize TLI coverage to unlock the full potential of these industries.