KIA&B May/June 2020 | Page 7

RISK MANAGEMENT
not both. You and the seller should each seek separate
counsel. It is a good idea to have a confidentiality
agreement with the seller so that you can freely review
all of the documents necessary to begin the change of
ownership.
After you have completed your due diligence, and you and
the seller are comfortable with all aspects of the agency,
the attorneys will draft the buy/sell agreement. Included
will be such things as the timing of the sale, the assets to
be transferred, the price, and of particular importance is
who is responsible for the liabilities of the selling agency.
The cleanest way to do this is for each party to retain
its liabilities. Regarding the seller’s E&O policy, they will
purchase tail coverage, and the buyer will add the new
agency’s book of business to their current E&O policy.
This is the cleanest way to make the change because
the seller will have the peace of mind of knowing that if a
claim arises after the sale for acts while they owned the
agency, their E&O policy will provide coverage for them.
The buyer understands that they will not be responsible for
any actions that may have occurred before the agency’s
purchase. This is true whether the selling agent will
continue as a separate entity or location for the buying
agency. In most cases, even if the buyer maintains the new
agency as a separate entity or location, it can be included
in their current E&O policy for errors and omissions that are
made after the sale.
Another option, while not the best way to transfer the
ownership, is for the purchasing agency to agree to
accept responsibility for prior acts. This is accomplished
by adding the selling agency to the buying agency’s E&O
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