Upgrading insurance coverage on inventory pre- or post-completion?

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July 09, 2025

by a searcher from KEDGE Business School in London, UK

I'm looking at a a company with a special kind of inventory that can't be replaced easily. They currently have insurance that covers the acquisition cost of the stock in case of a fire or something else, but this doesn't account for the time it would take to replace that stock. I was planing to increase the insurance coverage as soon as I step in, but would it be better for it to be in place on completion already? If so, is there a common way of doing this? ie is this something that gets put in the SPA, "this SPA is only valid if the insurance policy has been upgraded to..."?
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Reply by a searcher
from Newcastle University in Bristol, UK
Hi Florian, if it's something which you need before the tx closes then you can add in a 'completion requirement' in the SPA. Legally this is called a CP/'Conditions Precedent'. Im running a deal at the moment where a CP will be for the selling entity to cease operations in a particular jurisdiction
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Reply by a searcher
from Sri Chandrasekharendra Saraswathi Viswa Mahavidyalaya in Hyderabad, Telangana, India
Yes, it's absolutely good idea to have the upgraded insurance in place at or before completion, not afterward. Condition the SPA on it — either as a closing condition or a seller obligation. Execution is key and you may implement It in the SPA: Couple of practical options that I can suggest:
Option A: Closing Condition"Completion of this agreement is conditional upon the Company obtaining an insurance policy covering the full replacement value (or business interruption value) of its inventory, on terms acceptable to the Buyer."This gives you leverage to walk away if it's not in place.
Option B: Seller Covenant / Undertaking like £"The Seller undertakes to procure that, prior to Completion, the Company shall upgrade its inventory insurance to cover replacement cost and extended business interruption, and shall provide evidence of such coverage to the Buyer." Or similar one Option C # Indemnity or Escrow If for unpredictable reasons the seller pushes back on doing it pre-close, then your only moot is to imposeAn indemnity clause for inventory loss between signing and closing.A purchase price escrow to cover potential uninsured losses during that window.
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