Protecting a Deal the Insurers Almost Talked Their Way Out Of

The situation

Marco, an anesthesiologist, and Enzo, a technology executive, had built the business together as a side venture two decades earlier, and by the time they decided to sell it, the two of them barely needed to finish sentences with each other. Neither worked in the company full time. Marco made the operational calls in the evenings and on days off from the hospital, Enzo handled the money between board meetings at the software company he ran, and for twenty-some years that division had worked well enough that neither ever felt the need to write down who was responsible for what. That informality had served them fine as owners. It became a liability the moment Pensri, the buyer's lawyer, started asking pointed questions during diligence about who had actually signed off on which insurance renewals over the years.

The company was a mid-sized industrial services business based in Cochrane, and it was, by the time the sale process started, trading badly. A slower stretch in the regional economy had cut into revenue two years running, and Marco and Enzo were selling from a position that gave them less leverage than they would have liked. The buyer, a larger operator with capital and a mandate to consolidate smaller players in the sector, knew it, and the deal terms reflected that imbalance from the first draft. The purchase price sat in the fifty-to-eighty-million-dollar range, but the real fight was never about the number. It was about the conditions attached to it.

Buried in the indemnity section of the draft agreement was a clause requiring Marco and Enzo, as sellers, to first pursue any available insurance coverage before making a claim against each other, or being pursued by the buyer, for certain categories of loss. On its face this looked like ordinary risk allocation. In practice, it meant that if a claim arose after closing, the sellers could be stuck waiting on an insurer's slow internal process before they could resolve anything between themselves or respond to the buyer, even where the underlying facts were not in dispute.

Enzo brought the draft to us because something in the clause felt wrong to him, even though he could not articulate exactly why. He had read enough purchase agreements over the years to trust that instinct. Marco, meanwhile, was focused on an operational problem entirely separate from the legal drafting, a problem he had already found a practical fix for and did not want the deal process to disturb or, worse, to somehow undo the progress he had already made on his own.

What struck us first was how little either partner seemed worried about each other. Decades of working together had left them with an unusual kind of confidence: whatever came up after closing, they assumed they would sort it out between themselves. The clause they had been handed did not share that assumption.

What the other side was relying on

Pensri had built the insurance-offset clause around an assumption that was reasonable on its face: that requiring sellers to exhaust their own coverage before triggering an indemnity claim would reduce the buyer's exposure and discourage frivolous claims. Insurers typically respond faster and more predictably than litigated indemnity disputes, so routing claims there first, in theory, protects everyone's time. That was the argument she made when Enzo first pushed back, and it was not a bad argument as a general principle.

The problem was in how broadly the clause was drafted. It did not limit the offset requirement to claims where insurance coverage clearly existed and was reasonably likely to respond. It applied to any loss falling within a broadly worded category, regardless of whether a policy would actually cover it, and it required the sellers to wait for a formal coverage determination, appeal any denial, and exhaust that process before pursuing any other remedy. For a straightforward claim with an obvious answer, that could mean months of delay built into the agreement by design.

What the buyer's side was really relying on, whether deliberately or not, was the sellers' weak negotiating position given the company's recent performance. Marco and Enzo needed this sale to close, and the buyer's team knew a distressed-adjacent seller was less likely to fight hard over indemnity mechanics buried on page forty of a purchase agreement. Most of the negotiation attention on both sides had gone toward the purchase price and the working capital adjustment. The offset clause was the kind of provision that gets nodded through because nobody wants to be the party who reopens a deal over boilerplate-sounding language.

There was a second layer underneath all of this that had nothing to do with the legal drafting at all. Marco had already identified and begun fixing the operational issue most likely to generate a post-closing claim, a maintenance and reporting gap that predated the sale process. He had put a new tracking system in place on his own initiative, months before the lawyers got involved, precisely because he did not want this exact kind of dispute to happen to Enzo or to the buyer after closing. The legal work needed to protect that fix, not duplicate it, and recognizing that distinction shaped how we approached the negotiation from the outset rather than treating the clause as a pure drafting exercise.

None of this was explained anywhere in the draft agreement, which is often how these things go. Pensri's team had no way of knowing, from the documents alone, that the practical problem their clause was designed to guard against had already been substantially solved. They were negotiating against a risk smaller, on the ground, than the paperwork suggested, and part of our job was making sure the agreement reflected that reality.

What we did

1. Identified which claims the offset clause would actually delay. We mapped the categories of loss the clause covered against the company's actual insurance policies and found that a meaningful portion of the covered categories either had no matching policy or fell within exclusions the sellers already knew about, meaning the offset requirement, as drafted, would have created real delay with no realistic coverage sitting behind it to justify that delay.
2. Narrowed the clause to claims with confirmed, applicable coverage. Rather than fighting to remove the offset requirement entirely, which risked reopening a negotiation neither side had much appetite for at this stage, we proposed limiting it to loss categories where an identified policy was reasonably likely to respond, based on the coverage schedule attached to the agreement as an exhibit.
3. Built in a time limit on the insurance process. We added a provision allowing the sellers to proceed directly with an indemnity claim if the insurer had not made a coverage determination within a defined period, so a slow or unresponsive insurer could not become a backdoor way to run out the clock on an otherwise legitimate claim between the parties.
4. Protected Marco's operational fix from being treated as an admission. Because Marco had already implemented the new maintenance tracking system before the deal closed, we made sure the disclosure schedule described it accurately as a proactive improvement made on his own initiative, rather than letting it read, in the document, as evidence of a known and unresolved problem the buyer could later point to.
5. Clarified how claims between Marco and Enzo themselves would work. The original clause was ambiguous about whether it applied to disputes between the two sellers, not just claims from the buyer. We added language making clear the offset requirement governed buyer claims only, so any disagreement between the two long-time partners about their own post-closing obligations to each other would never get tangled up in an insurer's timeline.
6. Confirmed the coverage schedule matched the actual policies in force. We cross-checked the insurance schedule attached to the agreement against the current policies and renewal dates on file, correcting two entries that referenced coverage that had already lapsed, so the final document reflected real, current insurance rather than a stale list carried over from an earlier draft of the agreement.
7. Walked Marco and Enzo through the final language together. Given how much of their working relationship ran on trust rather than written agreement, we made sure both partners heard the same explanation, in the same room, of what the offset clause now did and did not require, so neither would be surprised later by how it actually operated if it was ever used, and so neither could later claim the other had understood terms he had not.

The outcome

The deal closed on the timeline the buyer's financing required, with the insurance-offset clause narrowed to claims tied to confirmed coverage and capped by a defined response period. The buyer accepted the narrower version without much resistance once the coverage analysis was on the table, because the change was grounded in actual policy documents rather than a general objection to the concept, which made it easy for their counsel to agree without feeling they had lost a point of principle.

The real value of the work showed up in what did not happen rather than in a dramatic resolution. No claim was ever made under the clause in the months following closing, in large part because Marco's maintenance fix had already addressed the underlying operational gap before the sale even completed. The legal work protected a solution that was already working, rather than creating one from scratch, which is often the less visible but more durable kind of result in a transaction like this. The buyer's post-closing integration team, reviewing the business roughly six months in, noted the tracking system as one of the stronger operational controls they inherited, with no idea it had been built as a direct response to a clause in their own purchase agreement.

Enzo said afterward that what mattered most to him was not the specific wording, which he readily admitted he did not fully follow, but knowing that the clause could not be used to stall a legitimate disagreement between him and Marco if one ever came up. For two partners who had run a business for decades on trust and a handshake, having that boundary clearly drawn in writing, just once, gave them both something they had never needed before but were glad to have going into a new chapter apart from each other. Marco, for his part, said he was mostly relieved the fix he had already made was recognized for what it was, rather than second-guessed by a buyer's legal team reading it cold.

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