When private equity fund managers think about insurance, they usually think of Representations & Warranties Insurance (“RWI”).  That makes sense—RWI covers representations baked into the deal itself that are front of mind when buying and selling portfolio companies (“PortCos”).  But once a deal closes and a PortCo continues operations under new PE ownership, a whole new set of operational issues unrelated to pre-closing representations can surface, giving rise to potential claims under a host of different lines of insurance, including directors and officers (“D&O”), errors and omissions (“E&O”), cyber, crime/fiduciary, general/limited partner (“GP/LP”), commercial general liability (“CGL”), and property policies, among others.  To make matters worse, coverage gaps between policies issued at the fund level and the PortCo level, finger-pointing between insurers, lapsed policies, and inadequate coverage can result in substantial financial losses for the PE Fund and PortCo alike.

This article walks through some common post-deal coverage problems and offers practical tips for avoiding them.  The key issues and the practical steps PE Funds and PortCos can take to address them are summarized as follows:

• Coverage Gaps: PortCos and PE Funds risk lacking the right insurance for the right entities as revenue, business lines, org structures, or holding companies change over time.  Recommended fixes include reviewing coverage at diligence and each renewal, structuring coverage at both the fund and PortCo levels, and conducting annual reviews with brokers and coverage counsel. 
• Insurer Overlap and Finger-Pointing: Overlapping fund and PortCo policies (e.g., D&O, fiduciary, cyber) can result in “other insurance” disputes where each insurer claims the other is primary, stalling payouts.  Recommended fixes include adopting clear “other insurance” clauses making the PortCo policy primary and adding priority-of-payments language.
• Tail / Run-Off Coverage: Canceling a claims-made policy (D&O, E&O, professional or fiduciary liability) at closing without a tail can leave former directors, officers, and the acquiring PE Fund uninsured for pre-close wrongful acts.  Recommended fixes include securing run-off coverage (typically for six-year terms) before closing, aligning run-off and go-forward wording, and considering standalone run-off policies for carve-outs or distressed sales.
• Cyber Insurance: Post-closing gaps can arise as the target’s policy nears renewal, the acquirer’s policy may not yet cover the new entity, IT integration creates new attack surfaces, and pre-close breaches may not surface for months.  Recommended fixes include reviewing the target’s cyber coverage for timing gaps before close and negotiating pre-approved counsel, vendors, and payment priority in the PortCo’s policy.
• Dual Capacity: PE professionals serving as both fund officers and outside PortCo directors risk denial under a “capacity exclusion” if insurers attribute a claim to the sponsor role rather than the director role.  Recommended fixes include eliminating broad capacity exclusions or, at minimum, obtaining affirmative language confirming director-capacity coverage.
• Insured vs. Insured (IvI) Exclusion: D&O policies often bar coverage for claims between insureds, and insurers may attempt to rely on such exclusions to avoid coverage for disputes between a fund and a PortCo or co-investor.  Recommended fixes include narrowing the exclusion to a “company versus insured” formulation, adding carve-backs for trustees, receivers, and LP claims, and watching for an overly broad “Insured” definition that expands the exclusion’s reach.
• Claim and Notice Issues: Late notice, poor coordination, or conflicting litigation strategies between a fund and a PortCo can jeopardize coverage under claims-made D&O and GP/LP policies.  Recommended fixes including erring toward early notice, checking notice requirements in both policies and indemnification provisions, coordinating litigation strategy, and designating someone to flag potential claims—including demand letters and regulator contact—promptly.

Most of these issues are preventable with proactive planning: conducting regular, coordinated insurance reviews across the PE Fund and PortCo levels, tightening policy language on tail coverage, exclusions, and notice requirements, and maintaining close communication between risk managers, brokers, and coverage counsel before a claim arises.

Coverage Gaps: One of the most basic—and costly—problems that PE Funds and PortCos may face in the wake of an unexpected incident or lawsuit is simply not having the right insurance in place for the right entity(ies).  If material coverage gaps in a PortCo’s insurance program are not uncovered during due diligence, both the PE Fund and the PortCo may find themselves exposed to surprise uninsured costs with no safety net.  These coverage issues can get worse over time, particularly for growth-stage companies: a policy doesn’t get updated after a revenue jump, a new business line isn’t covered, a re-organization of the org chart or ownership structure no longer matches the coverages purchased, or nobody checks whether insured organizations in the fund structure and individual partners or investors serving in key management roles are correctly listed.  Another complicating factor is that many PE Funds use holding companies (“HoldCos”), blocker entities, or investing vehicles to hold their investments in PortCos.  Though part of the PE Fund structure, PE insurers may argue that HoldCos, blocker entities, and investing vehicles are excluded under overbroad PortCo exclusions or do not fall within the definition of “Insured” in a PE Fund’s own policies, while PortCo insurers may argue that these intermediate parent companies are not insured under the PortCo policy either.

• Practice Tips: 
  • Don’t treat insurance as a set-it-and-forget-it exercise.  Instead, review all available policies and coverage types during due diligence before a transaction closes and again at each renewal. Structure insurance at both the PE Fund level and the PortCo level to minimize blind spots.Pay attention to org charts to ensure that all investing vehicles and holding companies in the PE Fund’s ownership chain are covered under either the PE Fund policy, the PortCo policy, or both, on an annual basis.PE Funds and PortCos may have different risk managers working with different brokers.  Make sure the risk manager/insurance buyers at the fund know their counterparts at the PortCo level and vice versa.Conduct an annual insurance review with your broker, in-house finance team, and coverage counsel to eliminate coverage gaps, and because policy language often changes annually and is negotiable.
  • Ask the key questions every year: Has the risk profile changed?  Are the right entities, individuals, and/or locations insured?  Do policy limits still make sense given revenue growth?  Do the PE Fund’s and PortCo’s corporate indemnification obligations align with D&O policy assumptions?

Insurer Overlap and Finger-Pointing: The opposite problem from a coverage gap: overlapping coverage.  PortCos typically carry their own standalone policies, and PE Fund policies often contain portfolio company exclusions, excluding claims against PortCos, placing the burden on the PortCo to ensure operational risks.  But when the PE Fund and the PortCo both maintain overlapping policies—like D&O, fiduciary, or cyber—“other insurance” disputes can arise.  Each insurer points to the other and says, “Your policy is primary—we’re only excess.”  The result?  Stalemates and delayed payouts, even though both policies technically apply.

• Practice Tips: 
  • Include clear “other insurance” clauses in your policies that specify the PortCo’s policy is primary and the PE firm’s policy is excess.Align “other insurance” and priority of payment with any intra-company indemnity agreements.
  • Make sure PortCo policies include a priority-of-payments clause that establishes the order in which proceeds are distributed when limits run out.

Tail / Run-Off Coverage: “Tail” insurance (also called run-off or extended reporting period coverage) applies to claims-made policies like D&O, E&O, professional liability, and fiduciary liability.  Here’s the problem: claims-made policies only cover claims reported during the policy period.  If a claims-made policy gets canceled at close and no tail is purchased, claims-made coverage for pre-close wrongful acts vanishes because post-close policies often exclude claims alleging pre-close wrongful acts.  That means if someone sues over wrongful acts that happened before the deal closed, there may be no insurance available to former directors and officers, and the PE Fund that bought the PortCo may be stuck with costly indemnification claims and no insurance.  PE buyers typically require sellers to purchase a multi-year D&O tail so that legacy directors and officers stay protected against post-close lawsuits alleging pre-close conduct.

• Practice Tips: 
  • Always consider the possible need for run-off coverage before closing.Align the wording in the run-off and go-forward coverages to ensure that at least one of the policies will cover a claim, regardless of when the wrongful act occurred.Ensure the run-off period lasts long enough to cover the time period in which most post-close claims that allege pre-close conduct could be brought (typically six years).Consider standalone run-off policies when the original policy is no longer in force.  This may become more essential in carve-outs, distressed sales, and long-held portfolio exits.
  • When the risks presented are unique, get creative.  Working with an experienced broker and coverage counsel, there are multiple options and ways to ensure continuity of coverage for claims regardless of when the alleged wrongful acts occurred.

Cyber Insurance: Cyber insurance coverage gaps may arise during the period right after a deal closes.  At that point, the target’s policy may still be in force but approaching renewal under new ownership.  The acquirer’s policy may not yet cover the new entity.  IT systems are being integrated (creating new attack opportunities), and the deal team has moved on to the next thing. 

And a breach that happened before close might not surface for months.  If the target’s policy has expired or the acquirer’s policy excludes known incidents, acquired entities, or has a retroactive date that doesn’t reach back far enough, the acquirer may be stuck with an uninsured loss.  Further, the PE Fund’s preferred data breach counsel and forensic firms may not be approved by the PortCo’s cyber insurance policy.

• Practice Tips:
  • Review target’s cyber coverage before close to identify potential gaps, including for any timing-based limitations.Review cyber coverage carefully when integrating IT systems post-close.
  • Negotiate pre-approved counsel, vendors, and priority of payment issues in PortCo’s cyber policy before close.

Dual Capacity: PE professionals often wear two hats: they’re a partner or officer at the PE firm and an outside director of a PortCo. This creates a tricky insurance problem.  Insurers may deny coverage under a PortCo’s D&O policy for PE firm members who also served as outside directors.  They argue the claims arose from the person’s PE sponsor role, not their director role—even if the claims clearly involved both capacities, invoking a “capacity exclusion” to deny the claim.

• Practice Tips:
  • Push to eliminate broad capacity exclusions from PortCo D&O policies.
  • At minimum, get the policy to affirmatively clarify that PE representatives serving as outside directors at the PortCo level have coverage in that director capacity.

Insured vs. Insured (IvI) Exclusion: D&O policies frequently exclude claims brought by one insured against another insured.  This is called the “insured vs. insured” (IvI) exclusion.  In practice, if a lawsuit is between the fund (or its general partner) and a PortCo (or a co-investor), the carrier may invoke this exclusion to deny coverage altogether.

• Practice Tips:
  • Narrow the IvI exclusion.  Convert it from a broad “insured vs. insured” exclusion to a narrower “company versus insured” exclusion that only bars claims brought by or in the name of the company itself.Add carve-backs for claims brought by bankruptcy trustees, receivers, and creditors’ committees.For GP/LP policies, add carve-backs for claims by limited partners against the GP or manager.
  • Check the breadth of your policy’s definition of “Insured.”  While it is favorable to have a broad “Insured” definition to maximize the scope of potential coverage, too broad a definition can have the unintended consequence of increasing potential application of an “insured vs. insured” exclusion.

Claim and Notice Issues: Late notice, failure to coordinate, or conflicting litigation strategies between the PE Fund and the PortCo can jeopardize coverage under policies that contain notice and consent requirements.  PE litigation often develops slowly, with post-closing disputes escalating over months before anyone thinks to notify the insurer. One of the most commonly-litigated issues in this space is timely reporting of claims under claims-made D&O and GP/LP policies. Depending on the factual circumstances and the governing law, an insured’s failure to timely report claims may cause an insurer to deny coverage, potentially leading to costly coverage litigation.

• Practice Tips:
  • Err on the side of reporting claims under both the PE Fund and PortCo policies.Check notification requirements under both insurance policies and indemnification provisions.  Virtually all contain written notice requirements that, if not met, may void the policy or the indemnification, depending on the jurisdiction.Coordinate proactively on claims involving PE Funds and PortCos.  Don’t let one side’s litigation strategy torpedo the other side’s ability to access insurance coverage.
  • Fund managers should have clear internal processes to ensure claims are reported promptly:
    • Designate a specific person or team responsible for flagging potential claims to counsel and the broker.
    • Educate in-house personnel that a “claim” isn’t limited to lawsuits.  Depending on how the term “claim” is defined in a particular policy, it may include written demands, demand letters, and (at least in certain policies) SEC investigations from early stages, including document requests.
    • Evaluate all written demands (not just complaints or Wells Notices) for potential submission as a claim or notice of circumstances.
    • Any contact from the SEC or other regulator should be evaluated for potential submission under the policy.

In sum, insurance in the PE/PortCo context is about much more than just the deal.  The issues outlined above—from avoiding coverage gaps to notice failures—can create real financial exposure if they’re not managed proactively. 

The good news: most of these problems are preventable with upfront planning, due diligence, and ongoing attention.  Work with experienced brokers and coverage counsel, review policies regularly to ensure the right coverage terms and conditions are in place, and don’t wait for a claim to find out whether your coverage responds.