Bass, Berry & Sims attorney Jon Stanley and co-author Allyson Coyne – Managing Director and Chief Broking Officer at Aon Transaction Solutions (ATS) – wrote an article published by ValueWalk discussing the state of representations and warranties insurance (RWI) in M&A deals during the COVID-19 pandemic. Jon and Allyson – along with Matthew Wiener, Managing Director at Aon – also participated in ValueWalk’s ValueTalks podcast on the topic.
In exchange for a premium paid to an insurance carrier, RWI lessens the risk in a transaction by allowing the seller indemnification and escrow to be minimized or even eliminated. This allows security for buyers and sellers in the event that problems arise at some point following the completion of a deal. RWI remains available for transactions without significant movement in premium or retention level, although some of the largest carriers have signaled an intent to increase premiums due to growing claims volume and loss payments.
In addition, some carriers have proposed to exclude damages arising out of COVID-19 from their policies. Because insurance providers are still eager to work with buyers and sellers, they remain flexible to negotiate the scope of such exclusions and will consider narrowing to a defined set of known impacts on the seller following due diligence.
Buyers should prepare for underwriting in RWI to focus on their diligence of COVID-19’s impact on the seller’s business, and the ability to demonstrate a thoughtful approach to diligence will help align the ultimate coverage position in the policy to specific risk factors instead of broad exclusions.
Finally, Aon’s recently released Representations and Warranties Insurance Claim Study noted an increase in the percentage of RWI policies resulting in claims, but so far there have not been any noted material changes in claims trends or carriers’ approach to claims handling.
The full article, “M&A Representations and Warranties Insurance in the COVID-19 Environment,” was published on July 8 by ValueWalk and is available online. The podcast episode, “Representations, Warranties, and Insurance with Allyson, Matthew, and Jon,” is also available online.