The process of investigation undertaken when one company is about to acquire another. It means thorough checks on a company’s financial performance and its liabilities, e.g. inadequately insured losses or risks, before a transaction is completed. Reports from solicitors, accountants and insurance brokers are a part of the process. Failure to exercise due diligence could expose directors and officers to claims insurable under directors’ and officers’ liability insurance.
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Proper care and attention. This term is commonly used to refer to the review of financial and legal documents in a merger or acquisition but is equally applicable to virtually any decision-making process, including whether to insure or self-insure, whether to form a captive insurance company, and a host of other risk management decisions.