Representations & Warranties Insurance

Representations & Warranties InsuranceRepresentations & Warranties Insurance protects against loss arising from a breach of a seller’s representations and warranties made in a merger or acquisition.  The insured may be either the seller or the buyer.

  • The seller-based policy indemnifies a seller who is sued for an alleged breach.
  • A buyer-based policy allows the buyer to claim proceeds directly under the policy for a breach. However, if there is recourse against an escrow or seller, such recourse must be pursued.

The Benefits Provided:

  • Collection Assured.  Even a good deal may lack certainty of collection of indemnity.  Whether it is an asset sale by a company being dissolved, a stock sale by retiring owners, a sale by foreign owners or an equity fund that is winding down, a privatization or a sale by a corporate parent that is itself preparing to be acquired, Representations & Warranties Insurance can backstop the representations made.
  • Avoid Suing Management.  In a management buy-out or buy-in transaction, Representations & Warranties Insurance provides an alternative to suing existing management in order to be fully indemnified for a breach.
  • Bridge the Deal.  Whenever an impasse is reached over a desired escrow amount, indemnity ceiling, or purchase price adjustment in light of a threatened or existing adverse condition or contingency, Representations & Warranties Insurance can “bridge” the deal.  The “bridge” may even yield a profit to the buyer, who agrees to reduce the escrow amount and/or indemnity ceiling in exchange for a reduction in the purchase price that exceeds the premium.
  • Enhanced Bid.  In the context of an auction sale or asset sale from a bankruptcy estate, superior terms can often make the differences in a deal.  Reduced escrow and indemnity ceilings (supported by Representations & Warranties Insurance) may enhance a bid.
  • Facilitate Acquisition Lending and Resale.  At no additional cost, Representations & Warranties Insurance can cover lenders and subsequent assignees.
  • Maximize ROI.  An equity fund seeking to maximize the amount and minimize the time incurred in distributing sale proceeds from a M&A transaction can use Seller-based Representations & Warranties Insurance to avoid internal reserves and/or can reduce escrow and indemnity obligations by insisting that a buyer obtain Representations & Warranties Insurance.
  • Seller’s and Buyer’s Sleep Insurance.  No post-closing budget surprises.