First and foremost the Purchase and Sale agreement is the basis for Transactional
\nLiability Products and the underwriting criteria for underwriting them.
\nA List of Transactional liability Products
\n1. Representations and Warranties Policy
\n2. Tax opinion coverage
\n3. Loss Mitigation Policy
\nRepresentations and Warranties Policy
\nCovers breaches in the Reps and Warranties in the Purchase and Sale agreement. It strictly
\nfollows the Purchase and Sale agreement on following topics;
\n1. Indemnification: This policy can stand in front of the seller for some or all of the
\nindemnification. This allows the seller to sell and be free of clawbacks.
\n2. Escrow: This policy can replace the escrow based on the fact that the policy stands as
\nthat escrow
\n3. Survival of the Reps and Warrants can allow an extension of the survival period eg. 12
\nmonths to 18-24 months and statutory for environmental and tax.
\nKeep in mind this policy isn\u2019t the end all for post- closing liabilities. It is strictly a breach
\npolicy. The carriers perform extensive due diligence which includes examination of the Data
\nroom and copies of the Due diligence reports of all the service vendors. Eg. Lawyers,
\naccountants and insurance.
\nIn the US if there is a breach it would be covered. Outside of the US if the information
\nabout the breach is discovered at the time of the loss in the data room there is no coverage. No
\nmatter where it has been hidden.
\nHistory
\nRep and Warranty policies have been around for 30 years typically the cost was 4-5% of
\nthe limit purchased. No one really bought the policy until 2008 when the market became a
\nsellers market
\nIn 2008 with the sellers market there was a transformation in the product and the use
\nof the product. It became a bid enhancement product. The cost was 1.5% of the limit
\npurchased. It dealt with the difference between what the seller wanted to offer and what the
\nbuyer needed. Eg. Seller wanted to give 10 million in indemnification and survival of Reps and
\nWarranties 12 months or in some cases none. This newly designed policy enhanced the bid by
\noffering 20 mill and extending the survival to 18-24 months with statutory on tax and
\nenvironmental. Thousands of these policies were sold. This product made the R&W Policy a real
\nbusiness.
\nThird major rendition. This new policy brought back the 4-5% cost but will replace and
\nstand in front of the indemnity section of the Purchase and Sale agreement. Many times the
\nattorneys representing the R&W carrier will ask for insurance to be placed before they will
\nprovide coverage. Depending on what the company\u2019s operations were and what were the
\npredecessor\u2019s businesses. Careful attention needs to be paid on the Purchase and Sale language
\nboth in the definition of pre-closing liabilities and the definition section of the contract.
\nIn the situation I mentioned about the generational ownership of property, both the
\nbuyer and the R&W underwriter will most likely want a phase 1 done on the property. Then the
\neconomics of the deal will determine who is accepting what pre and post-closing on going
\nliabilities. In the other example of the partnership break up this will depend on the cooperation
\nof the firing party. Certainly there will be a long hard fight based on the nature of their
\noccupations and their ability to make a living going forward.
\nTax opinion Coverage
\nTypically, it is purchased in a transaction where certain practices may be validated based on the
\ndetermination of the IRS. This policy allows the company to be bought with a backstop on the
\ntax issues, carring forward deductibility issues etc.
\nLoss Mitigation
\nThis is a policy that buys out litigation. Let\u2019s say Company A is sued for 100 mill and you
\nare trying to sell your business and the 100 Mill is killing any chance you have of selling the
\ncompany. A carrier such as AIG might offer to buy the claim for 50Mill knowing they can settle it
\nfor 35 Mill. AIG makes 15 mill and you get to take 100 Mill off your books for 35 Mill. Thus
\nallowing you the certainty to sell the company.<\/p>\n","protected":false},"excerpt":{"rendered":"
First and foremost the Purchase and Sale agreement is the basis for Transactional Liability Products and the underwriting criteria for underwriting them. A List of Transactional liability Products 1. Representations and Warranties Policy 2. Tax opinion coverage 3. Loss Mitigation Policy Representations and Warranties Policy Covers breaches in the Reps and Warranties in the Purchase […]<\/p>\n","protected":false},"author":7,"featured_media":224,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"acf":[],"yoast_head":"\n