Representation and Warranties (R&W) Insurance
Representation and warranties (R&W) insurance protects the parties in a merger or acquisition when the representations and warranties in the purchase agreement turn out to be inaccurate. It can cover the resulting losses and let a deal close with less money held back in escrow. Terms, exclusions, and limits vary by policy and by deal.
In a business sale, the seller makes representations about the company, its finances, contracts, and compliance. If one proves false after closing, the loss can be significant. R&W insurance transfers much of that risk to an insurer.
What does R&W insurance cover?
- Losses from a breach of the seller’s representations and warranties discovered after closing.
- Defense costs tied to a covered breach, subject to the policy.
- Buy-side policies, the most common form, which pay the buyer directly, and sell-side policies, which protect the seller.
- Unknown breaches; known issues are typically excluded and handled separately in the deal terms.
Who needs it? Buyers and sellers in a merger or acquisition, private-equity and strategic acquirers, and business owners selling a company who want a cleaner exit with less money held in escrow.
The policy is placed during the transaction, usually on a buy-side basis, and priced on the deal’s size and risk. It can reduce the indemnity escrow the parties would otherwise negotiate, helping the deal close. Because this is specialty coverage often placed in the surplus-lines market, terms and exclusions vary.
How we help: We work with you and your transaction advisors to understand the deal, access the specialty markets that write R&W, explain what a given policy does and does not cover, and place coverage that fits the transaction.
