Transactional Risk Insurance

When entering a business acquisition, both buyer and seller want to make sure that there is a solid contract or acquisition agreement in place. Insurance can be used as a tool to help bridge a negotiation gap or replace an indemnity arrangement, add protection against certain risks and allow a transaction to progress on track.

Why Do You Need Representations and Warranties Insurance (RWI)? 

Buyer Benefits

• Provides more protection than a traditional seller indemnity.
• Helps protect relationships by avoiding litigation in the event of a breach of representations.
• Bridges contract negotiation between the buyer and seller.
• Helps reduce credit risk for the buyer to collect on breach claims, given strong insurance carrier balance sheet.
• Distinguishes the buyer’s bid in auction.
• Offers indemnity where none would otherwise exist (e.g., taking a public company private).
• Encourages efficient claims resolution.

Seller Benefits

• Allows for less money dormant in escrow (e.g., a traditional indemnity is 10% of the purchase price).
• Provides a clean exit, allowing greater distribution to selling partners at closing.
• Bridges a negotiation impasse.
• Backstops a negotiated indemnity.
• Helps protect minority investors.

What Are Transactional Risks? 

Transactional risks are exposures that business entities face when conducting business deals. Examples of losses that may be covered under an RWI policy include breaches of the seller’s representations stemming from:*

• Errors in preparing financial statements.
• Noncompliance with laws.
• Lost or altered customer and supplier contracts.
• Undisclosed liabilities.
• Labor disputes.
• Condition of buildings and major equipment.
• Environmental problems.

Transactional Liability coverage is available on a non-admitted basis and may be accessed only through a surplus lines licensee. If you are an agent and would like to learn more about this product, please contact ASQ. 

*Policies provide coverage only if a seller made a relevant representation in the final purchase agreement and the RWI policy was written to provide coverage for a breach of such representation.