United States: Getting To Yes: Utilizing Reps And Warranties Insurance To Facilitate M&A Transactions

Co-authored by Judy Selby, Judy Selby Consulting LLC

Record numbers of M&A transactions were announced in 2017, and that number is expected to increase in 2018. That doesn't mean, however, that every announced deal is completed, that the process is always smooth, or that buyers' expectations were always met. The uncertainty that often abounds in the M&A context, concerning everything from the seller's corporate governance to its cyber security posture, can create obstacles that can impede and even derail a transaction.

To facilitate the process of getting to "yes," more and more companies are turning to Representations and Warranties (R&W) insurance. R&W insurance can be a key transaction facilitator, which protects a party in the event of post-sale discovery of incorrect representations and warranties in a sales contract.

Overview of R&W Insurance

Once a relatively obscure form of coverage, R&W insurance uptake is on the rise, particularly in middle market deals in the range of $100 million to $500 million. A seller-side policy protects the seller from claims that it breached a representation or warranty. Under a buyer-side policy, the risks associated with those seller breaches are transferred to the insurer, thereby eliminating or reducing the seller's liability. As more insurers, managing general agents and managing general underwriters have entered into the market, policy terms have improved, and data shows that valid claims under the policies are paid.

R&W Coverage Considerations

Here are some key issues to consider when contemplating the use of R&W insurance:

1. Costs

Calculating the true cost of R&W insurance to each party requires consideration of several issues. The first is the policy's retention (or deductible), which is generally expressed as a percentage of the value of the transaction. Minimum retentions usually are 1%. Parties should anticipate the possibility of an R&W claim in advance, and by agreement allocate between themselves responsibility for any retention.

The actual policy premium is another cost issue. Premium amounts are generally based on the amount of coverage desired, not on the size of the transaction, and usually range between 2.5% to 4% of the coverage limit. As with the retention, responsibility for payment of the premium is an issue for negotiation between the parties.

2. Scope of Coverage

Virtually any representation can be insured. The facts and circumstances claimed to exist will be specific to each individual transaction, but representations and warranties concerning corporate authority and organization, financial statements, regulatory compliance, full disclosure of liabilities, title to assets, important contracts, and intellectual property usually are insurable.

3. Policy Exclusions

R&W policies are likely to have deal-specific exclusions. Insurers will often consider industry-specific exclusions at the quote stage, and they may have some standard market exclusions such as asbestos. In addition, R&W policies sometimes incorporate exclusions for known issues, including those discovered during due diligence.

R&W Insurance as a Deal Facilitator

R&W insurance can be thought of as a transaction facilitator, which provides coverage in the event of post-sale discovery of incorrect representations and warranties in a sales contract. It should be considered in the context of other available options, such as price adjustments and escrow holdbacks, to mitigate the risks of the deal. Notably, however, some alternatives can be more expensive than R&W coverage and may not alleviate certain important obstacles to the deal.

For example, a simple purchase price adjustment can stoke resentment between the parties at a critical moment, and can also miss the mark if events do not unfold as expected. Escrow holdbacks can tie up significant funds for months or years, and determining how to draw down from them is problematic. Offsets against compensation or revenues can entail ongoing relationships that neither party wants.

Savvy advisors can use R&W insurance as a negotiation tool, a straw man, or simply for strategic breathing room. The buyer can offer to pay for all the costs as a sweetener in a seller's market. Or the parties can split or otherwise redistribute the costs, to help solve negotiation issues. Insurers can also be used as a sounding board in the final stages of a deal by either party.

R&W insurance can also benefit the buyer by removing time-consuming issues from the negotiation process and by making its bid more attractive to the seller. The coverage also can help in situations where pursuing post-deal claims against the seller is difficult, such as when there are multiple seller-side parties in diverse jurisdictions.


While there are several forms of purchase price protection available to M&A advisors, R&W insurance is particularly well-suited to helping deals close. By relieving the parties of major forms of post-closing liability, or by taking the seller out of the ongoing business entirely, it clears a path to accord. In addition, it can provide several opportunities to distribute costs and liabilities in a bespoke fashion. By learning and understanding the nuances of R&W insurance, M&A practitioners can take advantage of a valuable instrument for finalizing deals.

Dennis O. Cohen, Partner, Schnader Harrison Segal & Lewis LLP, dcohen@schnader.com, advises entities and individuals on commercial disputes, risk management, and business strategy. He often handles matters relating to finance, technology, software, intellectual property, art and media. Mr. Cohen frequently writes and speaks about litigation and investigation techniques.

Judy Selby, Founder and Principal, Judy Selby Consulting LLC, judyselbyconsulting@gmail.com, brings 25 years of insurance coverage litigation experience to her insurance consulting work. She has a particular expertise in cyber insurance and coverage under various policy forms for today's emerging risks. She provides coverage evaluation, policy negotiation, gap analysis, and SOC audit support services to companies across multiple industries, bringing greater clarity and certainty to their insurance program. Judy also provides insurance due diligence services and expert witness and litigation consulting services in coverage disputes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
Email Address
Company Name
Confirm Password
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions