The Risks in Transactional and M&A Insurance and Litigation, Part I: Representations and Warranties Insurance

• Pages: 26-32
• Date: 01 January 2025
• Author: Lauren Sandground,Chiara Tondi Resta,Ezra Gollogly,Will Davis

Insurance Coverage Litigation

Vol. 34 No. 1

Published in Coverage Vol. 34 No. 1, Copyright © 2025, American Bar Association. All rights reserved. This information or any portion thereof

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The Risks in Transactional and M&A Insurance and

Litigation, Part I: Representations and Warranties Insurance

By Lauren Sandground, Chiara Tondi Resta, Ezra Gollogly, and Will Davis

Over the past decade, there has been a fairly rapid adoption of transactional risk insurance by

parties to corporate transactions. They are regularly seeking insurance solutions through

representations and warranties insurance (RWI) (or, as it is sometimes referred to outside the

U.S., “warranty and indemnity insurance”) to minimize potential downside risks they face should

any promises the transaction parties made to each other turn out not to be true. Relatedly, with

post-transaction shareholder disputes continuing at a solid pace in the U.S., companies are

considering if and how their directors’ and officers’ (D&O) insurance may provide coverage in

the event of a post-closing dispute, including disputes over the valuation of a transaction.

Given the rapid adoption of RWI policies and ongoing litigation under D&O policies for post-

transaction events, the authors have kept a close eye on how coverage disputes under these two

policies have developed. Many of the coverage disputes that have reached public litigation under

these policies involve the “bumping up” of share prices and valuation “multipliers.” These

coverage disputes, plus the mergers and acquisitions (M&A) market generally and policyholder

interest in insuring post-transaction events, have each affected how underwriters are “weighing”

the risks of the companies and transactions they insure.

This two-part article—the first on RWI and the second on D&O insurance—assesses what’s on

the horizon for transactional insurance in light of recent developments in underwriting, claims,

and coverage disputes.

Overview of M&A Trends and the Value Proposition of RWI

In 2023, M&A activity fell to a 10-year low, reflecting a broad global decline in deal-making

activity and a sharp decrease in initial public offering activity. For the deals that did occur, there

was an increase in minority transactions and secondary exits (wherein company shares are sold

by individual shareholders rather than the company).

Despite last year’s decline in M&A activity, RWI has never been more popular. According the

2023 Private Target M&A Deal Points Study published by the ABA Section of Business Law,

from 2016 to 2023, the percentage of private company transaction agreements in the United

States that referred to RWI grew from 29 percent to 55 percent.

For companies contemplating a transaction, RWI is often viewed as an integral tool to enable

smoother negotiations, reduce friction between buyers and sellers, and safeguard against

unforeseen risks that might arise post-transaction. In general, these policies protect against

unforeseen liabilities or financial losses that may arise or be discovered post-transaction that

result in breaches of representations and warranties. RWI policies are primarily “buyer-side”

policies, issued to the buyers to protect against the downside risk of breaches by the seller, but