Two Claims Nobody Saw Coming, and a Policy That Held

The situation

'If something from before the sale comes back to bite us after we have sold, who actually has to deal with it?' That was the question Zainab put to us early on, before she and Omar had even agreed on final terms with the buyer. Zainab worked as a forklift operator and Omar as a letter carrier, and both held minority shares in a mid-sized business alongside several other family members, including their cousin Wilson, who had joined the business as a teenager and still ran its shop floor, the kind of company where ownership had accumulated across a couple of generations without anyone ever writing down a clean answer to that question.

The company was being sold to a larger buyer in a transaction valued at roughly eleven million dollars, with the various shareholders exiting on different timelines. Some, including Zainab, wanted to take their proceeds and step away entirely. Others, including Omar and Wilson, had agreed to stay on for a transition period and would receive part of their payment later, tied to how smoothly that transition went. That mix of immediate and deferred exits meant the group did not have identical interests in every term of the deal, and it made questions like Zainab's more urgent, since the people leaving immediately had the least ability to respond to a problem that surfaced later.

The company carried what is known as claims-made liability insurance, a type of policy that responds to claims first made and reported while the policy is active rather than to when the underlying incident happened. Most such policies also carry a retroactive date, though, excluding anything that happened before that date no matter when the claim is eventually reported, so the coverage does not reach back indefinitely. That distinction mattered because the buyer planned to replace the company's insurance program with its own on closing, which would normally cause the seller's old policy to lapse. Any incident that had occurred before closing but had not yet been reported as a claim, something like an old workplace injury or a product issue that had not yet surfaced, could fall into a gap where no policy responded to it at all.

Zainab's question, in other words, was really about exactly that gap. Answering it required a full review of the company's claims history, which is what our office was retained to do before the deal's terms were finalized.

The mixed exit timelines added another layer. Shareholders staying on, like Omar, cared about the buyer's goodwill and the company's continuity as much as the price. Shareholders leaving, like Zainab, cared more about a clean break, with nothing left dangling that could come back to them once they had no way to respond to it from inside the company. Any solution had to satisfy both groups without pitting one set of interests against the other, which meant the answer to Zainab's question could not simply favour the people leaving at the expense of the people staying.

What the other side was relying on

The buyer's opening position was that the seller's insurance was the seller's problem to solve, and that the purchase agreement should simply require the shareholders to indemnify the buyer for any pre-closing claim that emerged later, funded out of the sale proceeds if necessary. On paper this looked fair. In practice it meant Zainab, Omar, and the other shareholders who were leaving immediately would be personally exposed, potentially years after the sale, for anything that surfaced from before they sold, with no insurance standing between them and the claim.

The buyer's counsel argued this was standard practice and that arranging replacement coverage for a claims-made gap was expensive and unnecessary given the company's clean claims record. That argument rested on an assumption we could not confirm without doing the work ourselves: that the record actually was clean. A claims history review means going through several years of the company's insurance files, incident reports, and any correspondence suggesting a problem that had not yet turned into a formal claim.

The review turned up two things. First, a minor but real gap: an incident from about eighteen months earlier involving a workplace injury that had been treated internally and never formally reported to the insurer, sitting right in the kind of blind spot a claims-made policy misses. Second, and unrelated to the insurance question entirely, a supply contract with one of the company's larger customers contained a clause the shareholders had not flagged, which gave that customer a right to terminate if the company's ownership changed without advance notice, something the sale itself was about to trigger.

The buyer's assumption that the file was straightforward had been reasonable on the surface, but it had not accounted for either of these, and both needed to be resolved before the shareholders could safely agree to the terms the buyer wanted, including the indemnity structure it had proposed in place of continued insurance.

What made the moment tricky was that the two issues surfaced within days of each other and, on their face, had nothing to do with one another. It would have been easy to treat them as separate workstreams handled by different specialists on different timelines. Instead we treated them as a single closing risk, because either one, left unresolved, could have given the buyer grounds to delay closing or renegotiate price, and the shareholder group could not afford two rounds of renegotiation on top of the terms they had already settled.

What we did

1. Reviewed five years of the company's claims and incident history. We went beyond the formal insurance claims log and pulled internal incident reports and workplace safety records as well, because a claims-made policy only protects against what actually gets reported to the insurer, and an incident that was handled quietly rather than formally reported would never show up in the insurer's own files at all.
2. Identified the unreported workplace injury as a live exposure. Once we found the eighteen-month-old incident buried in internal safety records, we treated it as a potential future claim even though no formal claim had ever been made, because the person involved still had time under the applicable limitation period to bring one, and the company's coverage would not respond if that happened after the policy had lapsed on closing.
3. Arranged an extended reporting endorsement, sometimes called tail coverage, before closing. This type of endorsement lets a claims-made policyholder report incidents from before a certain date even after the original policy has ended, and we negotiated for the seller's insurer to add it specifically covering the pre-closing period, so incidents like the unreported injury would still have somewhere to land once the buyer's own policy took over.
4. Rejected the buyer's proposal to substitute a personal indemnity for insurance. We explained to the shareholders why an indemnity funded from proceeds they had already received and spent would be far less reliable than an active insurance policy still standing behind them, and pushed back firmly on the buyer's position that the indemnity alone was sufficient protection given what the claims review had actually found.
5. Flagged the customer contract clause to the whole shareholder group immediately. Because this second issue was entirely unrelated to insurance and had not been on anyone's radar before the review, we raised it with the group as soon as it surfaced rather than waiting to finish the insurance work first, since losing a major customer could have affected the company's value before closing even took place.
6. Negotiated advance notice and consent from the customer ahead of closing. We worked closely with company management, including Wilson on the shop floor, to approach the customer proactively, framing the ownership change as continuity of service rather than disruption, which secured the customer's written consent to waive the termination right well before the sale itself was scheduled to close.
7. Rebuilt the closing checklist to sequence both fixes correctly. With two separate problems needing resolution on overlapping timelines, we sequenced the tail coverage confirmation and the customer consent so that neither one held up the other, confirming both were fully complete and documented in writing before the purchase agreement itself was finalized, signed, and released to every party involved.
8. Reported back to the full shareholder group on both timelines, not just Zainab. Because Omar and the shareholders staying on through the transition had a different stake in the outcome than those leaving immediately, we kept the whole group informed in writing as each issue resolved, so no one was relying on assumptions about what had or had not actually been fixed.

The outcome

The sale closed on the original schedule at the full agreed price of roughly eleven million dollars, split across the shareholder group according to their existing ownership. The tail coverage endorsement cost a modest amount relative to the transaction size, paid out of the sale proceeds before distribution, and it meant that when the previously unreported workplace injury was eventually formally reported to the insurer several months after closing, the claim was accepted and handled under the old policy exactly as intended.

The customer contract issue resolved even more cleanly. Once the customer understood the change in ownership would not affect service, it agreed to waive the termination right in writing, and the contract, worth a meaningful share of the company's ongoing revenue, stayed in place through the transition and beyond.

For Zainab, who left immediately after closing, the outcome meant she no longer carried personal exposure to the old workplace injury once it eventually surfaced, because the tail coverage rather than her own proceeds absorbed it. For Omar and Wilson, staying on through the transition, the resolved customer contract meant the business they continued working in kept its footing rather than losing a major account in its first months under new ownership. Neither problem would have been visible from the transaction documents alone, and both were only caught because the initial question Zainab asked led to a review broader than the deal's paperwork had called for.

None of the shareholders had to accept a lower price or an unfavourable payment schedule to get this outcome, which is what made it a clear result rather than a partial one. The cost of both fixes, the tail coverage premium and the time spent negotiating with the customer, was modest against a transaction of this size, and it came out of the deal's own proceeds rather than out of anyone's pocket separately. Zainab has since said that the answer to her original question turned out to matter more than she expected when she first asked it.

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