Make Sure Your General Partner Liability Insurance Works As Intended

Last summer, the Sun Capital Partners case potentially opened the door to holding private equity firms liable for the underfunded pension obligations of their portfolio companies. Many fund sponsors and managers have subsequently been carefully reviewing their portfolio companies for possible funding issues, and also trying to avoid the circumstances that led the First Circuit to rule that Sun Capital could potentially be liable. The decision effectively undermined the protection that ERISA had historically provided to private equity funds for just such liabilities.

But the more familiar issues of professional liability, indemnity obligations, fiduciary liability and regulatory investigations still form the backbone of the risk management issues facing private equity firms. A properly constructed general partnership liability (GPL) insurance program can help both protect the fund assets and guarantee that the indemnification obligations of funds are met.

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