Representations & Warranties Insurance

Representations & Warranties Insurance throughout the United States.

In mergers and acquisition transactions, representations and warranties insurance is designed to provide insurance coverage for the breach of a representation or warranty contained in the purchase agreement.

A representations and warranties (R&W) insurance policy covers loss from claims made by the buyer or any breach of, or an alleged inaccuracy in any of, the representations and warranties made by the seller in the acquisition agreement.

A representation is statement of fact which is relied on by the receiving party and induces them to enter into the contract. A representation is required to be substantially true, i.e., the material portion of the statement must be literally true even though the immaterial portion of the statement need not be true or correct. On the other hand, a warranty must be strictly and literally complied with.

In the current competitive auction format for mergers and acquisition deals in the private space, R&W insurance coverage can enhance the bid from a buyer as it can be used to reduce or take the place of an indemnity from the seller. Buyers who agree to look to an R&W policy are more attractive to a seller looking to close the deal without an extended tail of indemnity responsibility.

A typical R&W policy covers a period for 3 years for general reps and 6 years for fundamental and tax reps. This is likely a longer survival period for coverage than the buyer would be able to secure from the seller.

R&W coverage usually costs 2.5% to 4% of coverage limits. Additionally, underwriters will charge an up-front underwriting fee between $25,000 to $50,000 to perform due diligence. Retention is normally 1% to 3% of the transaction value.

If you are interested in having R&W insurance, get in touch with our team today for more information.