Representations & Warranties

Representations & Warranties Insurance is designed to protect against losses that arise out of corporate representations and warranties in conjunction with a variety of business transactions, especially mergers, acquisitions, spin-offs, etc.

The objective of Representations & Warranties Insurance is to provide the parties to a transaction with a commercially viable insurance alternative to the existing "security" arrangements contained in the deal documents.

A Seller’s side policy reimburses the seller or pays the buyer on behalf of the seller, for losses resulting from claims made by the buyer for an inaccuracy of the representations and warranties made by the seller about the acquired company or business, thereby protecting the seller from having to return a portion of the purchase price. A seller may desire this coverage if 1) they want to avoid contingent liabilities and make a clean break – and avoid the possibility of being subject to indemnification claims by the buyer for an extended period of time after the deal close 2) the seller is motivated by liquidity concerns and wants to get full proceeds from the sale to distribute to investors or pay debt for instance. A policy can be put in place to replace or reduce an escrow requirement.

WHY KRAUTER REPRESENTATIONS & WARRANTIES?
A Buyer’s side policy reimburses the buyer for losses resulting from an inaccuracy in the representations and warranties made by the seller about the acquired company or business, thereby enabling the buyer to recover its losses directly from the insurer without having to first locate and then pursue the seller and its assets. A buyer may desire this coverage if 1) the buyer is unable to obtain seller indemnification; 2) the buyer is unable to obtain a desired level of seller indemnification (policy can supplement indemnification) 3) buyer is concerned about its ability to collect on the indemnity from the seller.

HIGHLIGHTS:

  • Both Buyer-based and Seller-based policies available
  • Policy is generally manuscripted to apply to particulars of a transaction
  • Ability to cover all representations and warranties contemplated in a transaction (including, but not limited to; tax matters, environmental matters, financial statements, etc.)
  • Premium is generally 4-6% of the limit purchased, $100,000 minimum premium
  • Retention is generally 1-3% of the transaction value
  • Policy Period can match survival period of representations and warranties

INFORMATION REQUIRED TO PROVIDE INITIAL INDICATION:

  • Copy of contract or agreement which contains the representations and warranties, including all exhibits + addendums
  • Copy of all disclosure schedules to the above contract or agreement
  • Copy of the seller's audited financial statements with notes and any other document(s) that describe the business or the assets
  • Detailed description of the proposed transaction or situation (such as an offering memorandum or due diligence memorandum)

MORE INFORMATION? CONTACT US.
For more information about Krauter & Company’s Representations & Warranties capabilities or professionals, send your request to: info@krautergroup.com

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