Does it matter if the business has unresolved insurance claims still open?
Yes, open insurance claims are worth tracking down specifically before closing rather than assuming they'll simply resolve themselves in the background. An unresolved claim represents a contingent asset (money the business may still receive) or, depending on the type of claim, a contingent liability, and either way it affects the true financial picture in ways that a snapshot balance sheet may not fully capture.
Who benefits from, or is responsible for, an open claim after closing depends heavily on deal structure and specific drafting. In a share sale, the corporation generally retains the benefit of its own pending claims (and any related obligations) since it's the same continuing legal entity, unless the purchase agreement specifically addresses how claim proceeds are shared or allocated around the closing date. In an asset sale, whether an open claim (and any eventual payout) belongs to the buyer or stays with the seller needs to be specifically addressed, since it isn't automatically obvious which side "owns" a claim that predates closing but might be paid out afterward.
Get a full list of open claims and their status, and make sure your purchase agreement specifically allocates the benefit and responsibility for each one. A Treadstone business lawyer can help draft that allocation clearly.
Key takeaways
- Open insurance claims function as contingent assets or liabilities not fully reflected on a balance sheet.
- A share sale generally keeps open claims with the corporation as the continuing entity.
- An asset sale needs specific drafting to say who benefits from or answers for a pending claim.
- Get a full list of open claims and allocate responsibility for each explicitly in the agreement.