Reps & Warranties Insurance (R&WI)

Benefits and Examples

Benefits to the seller include: 

• Lowers the cap on a seller’s post-close exposure
• Frees up funds that had traditionally been placed in escrow
• Facilitates a “cleaner” break post-closing

Benefits to the buyer include:

• Can increase the scope of indemnification available under the acquisition agreement
• Extends the duration of the R&W survival periods
• Provides a 3rd party source of recovery post-closing, rather than seller, partially-owned firm or management--thereby preserving the ongoing relationships

Examples of “loss” definitions in R&W policies: 

• “Loss” means the amount to which the insureds are contractually entitled in respect of a breach pursuant to the terms of the acquisition agreement
• “Loss” means the aggregate amount of any losses, liabilities, claims, damages, penalties, fines, judgments, awards, settlements, costs, fees and expenses incurred by any insured for, or in respect of, (A) a breach or (B) a third party
• Demand based upon, arising from, or attributable to an actual or alleged breach