May 31, 2018 Articles

Improving Corporate Matchmaking: The Rise of Transactional Liability Insurance

Private equity firms and companies use transaction liability insurance, including representation and warranty (R&W) insurance, to manage the risk inherent in mergers and acquisitions

by William G. Passannante, Carrie Maylor DiCanio, and John M. Leonard[1]

Private equity firms and companies use transaction liability insurance to manage the risk inherent in mergers and acquisitions. Most common among these types of insurance is representation and warranty (R&W) insurance, which covers the risk of a target company’s seller breaching representations and warranties in a purchase agreement. R&W insurance was first created decades ago but has become increasingly popular in the past few years, particularly among private equity firms, which use it to facilitate the purchase and sale of portfolio companies.

This article discusses the history of transactional liability insurance, reviews existing case law addressing coverage issues that can arise under transactional liability policies, and offers strategies for policyholders with claims under these types of policies.

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