Suppose BBAD plans in 2020 to merge with a privately-owned distillery to manufacture and brand at least two new products -- AppleJax, an alcoholic beverage (46% ABV), and ApplesAlive!, a fermented but nonalcoholic probiotic beverage. BBAD management has spent a year and $1 million developing the new products in collaboration with the management of the distillery. While finalizing the merger agreement, the distillery's management suddenly informs BBAD management that BBAD is just one of three companies with whom the distillery intends to merge, produce and brand these new products. Since BBAD did not get an exclusivity agreement with the distillery (which several BBAD owner-members had tried to insist on), but instead has been collaborating exclusively (or so BBAD management thought) on a handshake agreement, the legals grounds for an injunction against the distillery are weak. Instead, BBAD focuses its efforts on determining the risk management implications of the decision to go through with the merger. Two alternative problems arise:

If the company goes through with the merger, BBAD's financial benefits from the merger likely will be only 50% of the earlier projections, resulting in at least $5 Million lost opportunity. Having spent a great deal of money on R& D and legal already, management is fairly certain BBAD ownership (the members of the LLC) will sue the company's Directors and Officers as well as BBAD itself for a wrongful act resulting in injury to the owners. Legal estimates a $1.5 Million settlement in favor of the owner-members would result.

If the company does not go through with the merger, BBAD's sunk cost of $1 Million R&D plus $200,000 in merger legal fees and professional advice become a huge loss for the company rather than an investment. BBAD management is fairly certain BBAD ownership (the members of the LLC) will sue the company's Directors and Officers as well as BBAD itself for a wrongful act resulting in injury to the owners. Legal estimates a $1 Million settlement in favor of the owner-members would result.

Without trying to determine what BBAD should do about the merger, briefly discuss just the insurance implications of these two alternatives. 

i) If BBAD goes through with the merger and what management fears does indeed happen -- members of the BBAD LLC sue the company's Ds and Os as well as BBAD itself for a wrongful act resulting in injury to the owners, resulting in a $1.5 Million settlement in favor of the owner-members. 

ii) If BBAD does not go through with the merger and what management fears does indeed happen -- members of the BBAD LLC sue the company's Ds and Os as well as BBAD itself for a wrongful act resulting in injury to the owners, resulting in a $1 Million settlement in favor of the owner-members:

Now suppose that BBAD's Board of Directors and management decide on a third alternative -- BBAD acquires the distillery (in early 2020). With the purchase behind them, BBAD management take over strategic management of the distillery, but leave the day-to-day operations temporarily in the hands of the distillery's long-time three-person management team. Six months after the acquisition, BBAD fires all three top operational managers (all of whom have become BBAD officers as a result of the acquisition agreement), each of whom is over the age of 50. While BBAD argues lack of trust is the justification for firing the three, each of the three fired officers alleges age discrimination, files a complaint with the EEOC and a lawsuit against BBAD for $2 Million (each). What are the insurance implications of:

iii) Settling the three lawsuits for $1.5 Million total, with minimal defense costs of $30,000?

iv) Winning the three lawsuits, but incurring defense costs of $250,000? 

Answer rating: 100% (QA)

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