REPS CAPTIVE AND INSURANCE WARRANTIES
BY : BRANDON HORROCKS STERLING INSURANCE
Reps And Warranties Insurance :
A Primer
Lone type of insurance that ’ s quickly growing in popularity is Reps and Warranties . While it ’ s been available since the mid-1990s , its use has surged in recent years as people have slowly been discovering the tremendous value it provides . If you ’ re a frequent dealmaker and have never really considered this type of insurance , this article is for you .
Reps and Warranties insurance provides coverage for breaches in representations or warranties made by a seller to a buyer in connection with the sale of a company , subsidiary , or basket of assets . The target deal size for this type of insurance is $ 25 million to $ 3 billion , although it is sometimes available for even smaller deals .
The policies can be developed in either buyer-side or seller-side configurations . On the buyer side — which accounts for the vast majority of policies sold in the United States — reps and warranties mainly serve as a strategic tool to protect the buyer and get deals done more quickly . Because the buyer is protected by this type of policy , he or she is able to offer more attractive deal terms , including a lower escrow and liability cap , shorter survival periods ,
and low or no recourse against sellers . This type of policy allows for broader language in negotiating deal terms and helps provide the seller with a clean and timely exit . The buyer benefits by having peace of mind in knowing that an insurance carrier is standing behind any potential losses in the event of unsecured indemnity obligations by the seller .
On the seller side , the insurance can help minimize indemnification liabilities post-closing , ensuring a smooth exit and timely payouts to partners or other investors . The tax implications of a drawn-out indemnity period can also be avoided , thus simplifying and shortening the deal . If issues like succession are involved , a seller-side policy can also help the buyer avoid unexpected liabilities that could potentially jeopardize the deal .
Most Reps and Warranties policy forms are highly negotiable and are written with the cooperation of insurers , buyers , attorneys , and brokers . Despite the complexity of these policies , however , it is not necessary to seek out a national broker to accommodate most needs . Sterling Insurance has in-house capability to underwrite and vet policies using internal counsel and other on-staff talent .
Many insurance agencies have found themselves overwhelmed in writing these policies in recent years as demand for them has risen . Experience and overall proficiency in the claims area also varies widely among providers ; some are just getting started in the field while others have been handling such claims for years .
If you haven ’ t considered Reps and Warranties insurance in the past , now is a great time to jump in . Its great versatility can save you from a lot of headaches down the road and make your deals just that much safer . Sterling Insurance is well-equipped to help familiarize you with the “ ins and outs ” of these policies , so feel free to reach out and contact us at 586-323-5700 at any time . +
Brandon Horrocks joined Sterling Insurance Group in 2013 and brought with him 20 years of knowledge and in experience in the Commercial & Benefits arenas . Brandon makes your business his business and is well versed in helping his clients reduce their risk & liability during the Merger & Acquisition process . Contact Brandon at bhorrocks @ sterlingagency . com or ( 586 ) 685-0125 .
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