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Contingent Liability

Similar to a tax risk, Buyers become wary about assuming a potentially catastrophic risk even when the actual probability of loss is very low.  In this situation the Seller is unlikely to allow for an escrow or holdback equal to the potential exposure. Examples of insurable risks include litigation or other legal and regulatory contingencies.

For the Seller, these types of risk can kill the transaction because there is no way to value the contingent liability. Insurance provides the needed valuation so the two parties can negotiate over a known cost.

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