How R&W Insurance Can Help Protect Your Next M&A Deal

In any merger and acquisition (M&A) deal, unexpected financial or operating issues can surface after closing. Business buyers and sellers often set up a cash escrow at the time of sale to address potential future disputes. Over the past decade, M&A transactions have become more complex in terms of deal preferences due to unexpected geopolitical and liability challenges.¹

 

While traditional escrow is still an option, customizable Representations and Warranty (R&W) insurance has emerged as a strong alternative. R&W insurance helps cover losses from unknown inaccuracies in seller representations made to the buyer. It can provide significantly more financial flexibility for sellers while offering buyers more protection against unexpected events over longer periods of time post-deal.

 

“R&W can help foster trust and transparency between buyers and sellers, which is particularly important when sellers are staying with the business as a shareholder or member of management and will have a go-forward business relationship with the buyer,” says John Quinn, head of R&W at The Hartford. “It can help limit or eliminate the need for large cash escrows, leaving the seller more money at closing while better protecting both parties against a broader range of risks.”

 

According to the American Bar Association, approximately one-third of North American M&A deal disputes are related to an alleged breach of a seller’s representations and warranties over financials, physical assets or intellectual property.²

 

Contracts involving the sale of a business typically include a section on representations and warranties. Representations are statements of fact related to the business being acquired. A warranty is an assurance that statements of fact about the business are truthful.

 

The R&W section of the contract may contain dozens of representations and warranties about the business being acquired.³ These representations include detailed statements regarding the target company’s ownership, operations, financial statements, legal compliance and material relationships. That’s why representations and warranties related to any business sale or purchase deal can be one of the most heavily negotiated parts of a contract.

 

Experienced R&W insurers typically become involved in the deal process during the final stages to help buyers and sellers streamline the negotiations of the representations and warranties. But as buyers and sellers watch and wait for a more active M&A market, R&W protection may be worth studying now.⁴

 

Both buyers and sellers can purchase R&W insurance. A buyer-based R&W policy enables the buyer to recover defense costs and losses directly from the insurer instead of having to pursue the seller directly. A seller’s R&W policy secures the seller’s indemnity obligations in the deal and covers claims by the buyer for errors in its representations and warranties.

 

Every R&W policy is customized to the specific deal but is generally designed to mirror the representations made by the seller to the buyer in the contract governing the sale of the business. This helps protect policyholders from:

 

Matters that a buyer identifies as a material issue as part of its due diligence, such as ongoing litigation, claim or tax exposure, would usually be outside the scope of an R&W policy, Quinn notes.

 

Whether business leaders are buying or selling, R&W insurance can help offer protection from deal disputes that can emerge over longer periods of time and under more complex circumstances.⁵

 

Many inaccuracies in representations and warranties can surface during the first year after the transaction. But broader issues related to valuation and liability can surface much later with more serious consequences. Examples might include representations about relationships with top customers, condition or sufficiency of assets, regulatory compliance, and even emerging AI and cybersecurity issues. Insurance professionals who intimately know the business and its long-term industrial risk profile use their knowledge to design the right R&W coverage solutions for the company with lengthier protections.

 

“R&W policies provide a longer reporting period than a traditional escrow,” Quinn explains. “An escrow typically remains in place for 12 to 18 months post-closing, meaning that a buyer’s recourse is typically limited to errors discovered within the escrow’s survival period.” In contrast, R&W coverage generally has a six-year term for fundamental and tax representations and three years for all other representations.

 

Deal disputes are getting more complicated, emerging over longer periods of time on a wider range of issues.

 

Now may be a good time to study the advantages of R&W coverage as deal volume remains slow with significant investment capital still on the sidelines.⁶

 

“We anticipate more activity with all that pent-up demand and dry powder,” says Michael Salvatore, private equity practice lead at The Hartford. He sees continuing investor caution due to tariffs, interest rates and geopolitical uncertainty, but believes the landscape in the second half of 2025 could change.

 

Learn More About Representations and Warranties Insurance.

 

 

¹ “2025 Midyear Outlook: Global M&A Industry Trends,” PwC, viewed July 14, 2025.

 

²  “The Continued Rise of Representations and Warranties Insurance: 2024 Forecast,” American Bar Association, viewed July 14, 2025.

 

³ “An Overview of Representations, Warranties and Indemnification in M&A,” National Law Review, viewed July 14, 2025.

 

⁴ “U.S. Deals 2025 Midyear Outlook: Private Equity,” PwC, viewed July 14, 2025.

 

⁵ “Reps & Warranties Insurance Uptake Grows as Key Player in the M&A Safety Net,” Risk & Insurance, viewed July 14, 2025.

 

⁶ “2025 M&A Outlook: 4 Trends Driving an Anticipated Rebound,” Morgan Stanley, viewed July 15, 2025.

 

The Hartford shall not be liable for any damages in connection with the use of any information provided on this page. Please consult with your insurance agent/broker or insurance company to determine specific coverage needs as this information is intended to be educational in nature. 

 

The information contained on this page should not be construed as specific legal, HR, financial, or insurance advice and is not a guarantee of coverage. In the event of a loss or claim, coverage determinations will be subject to the policy language, and any potential claim payment will be determined following a claim investigation. 

 

Certain coverages vary by state and may not be available to all businesses. All Hartford coverages and services described on this page may be offered by one or more of the property and casualty insurance company subsidiaries of The Hartford Insurance Group, Inc. listed in the Legal Notice. 

 

The Hartford Insurance Group, Inc., (NYSE: HIG) operates through its subsidiaries under the brand name, The Hartford, and is headquartered in Hartford, CT. For additional details, please read The Hartford’s Legal Notice.