R&W policies provides coverage for losses incurred because of breaches or inaccuracies of the representations and warranties made in business transaction agreements. As part of a buy-sell transaction, the seller typically makes numerous representations to the buyer and warrants to the buyer critical facts about the business. These attestations are an inducement to the buyer to enter into the purchase contract. While the parties both hope that the representations made are accurate, disagreements can often arise. Such disputes routinely pertain to issues such as financial condition, accounts receivable position or intellectual property, as well as the duration and/or amount of a seller’s indemnification obligations.
Often, when a business transaction is nearly complete, final details or last minute issues can create an impasse to “sealing the deal”. It is at this critical juncture that R&W insurance can be used to remove these obstacles and facilitate closure. In addition, the preemptive purchase of R&W can provide peace of mind that each party received what they believe they negotiated.
Key representations typically include compliance with law, no undisclosed liabilities, accuracy of financial statements and tax. This coverage is not intended to cover known breaches.
Why Buyers Request Coverage:
- Enhance Amount/Duration of Indemnity
- Distinguish Bid in Auction
- Protect Key Relationships
- Ameliorate Collection Concerns
- Protect the Deal
- Reduce Contingent Liabilities
Why Sellers Request Coverage:
- Distribute Sale Proceeds
- Increase Purchase Price
- Supplement Disclosure Process
- Protect Passive Sellers
- Insure Certainty of Purchase Price
- Expedite Sale
If you are looking to purchase or sell your company and would like information on this coverage, reach out to us. This coverage does not make sense for every transaction so make sure you work with a broker that can walk you through it. I hope that you never need to rely on coverage like this and if you do you want to make sure it responds.