Representations and Warranties Insurance Explainer
Representations and warranties insurance covers specified losses when statements in an acquisition agreement prove inaccurate. A buyer-side policy is most common: the buyer can seek covered recovery from the insurer instead of relying entirely on the seller. Seller-side coverage can protect a seller against certain claims, subject to policy terms and exclusions.
The insurer reviews the transaction documents and the buyer’s diligence before binding coverage. The policy sets a limit, retention, survival period, exclusions, and claims process. Premium, underwriting fees, broker costs, and responsibility for the retention become part of the deal economics.
Insurance can support a cleaner seller exit, reduce escrow, and make a bid more attractive in a competitive process. It can also provide a meaningful recovery source when sellers are numerous or difficult to pursue. The policy does not replace diligence because insurers expect a well-investigated transaction.
Known issues, forward-looking statements, purchase-price adjustments, underfunded pensions, cyber matters, taxes, or other categories may be excluded or specially underwritten. Fraud treatment and subrogation rights also matter. Parties should compare the policy with the acquisition agreement line by line and avoid assuming every breach is insured.
Coverage responds to specified losses from inaccurate representations.
Buyer-side policies are common in acquisitions.
Insurers review the agreement, process, and findings before binding.
Insurance does not replace investigation.
Known risks and selected subjects may sit outside coverage.
Read the policy beside the deal agreement.
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