The Seller’s Role in a Buyer’s Reps & Warranties Insurance Claim

The idea that seller is “fully removed” from any post-closing liability as a result of an R&W insurance policy is incorrect. Unless the deal is structured as a “no survival” transaction, the seller commonly retains liability to the buyer with respect to satisfying a portion of the retention (usually funded through an escrow) as well as for claims of breach of fundamental representations that occur during the indemnity period that surpass the insurance limits.  Further, apart from the underlying merger or acquisition agreement, the seller is potentially liable for common law fraud.  Given this common structure, parties looking at R&W insurance should consider what, exactly, the seller’s role will be in a claim and what obligations the buyer will have under the policy.

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