Representation and Warranty Insurance (RWI)
Representation and warranty insurance, or RWI, is transaction insurance designed to cover specified losses arising from breaches of representations and warranties in an acquisition agreement, subject to the policy’s terms, exclusions and retention.
Why the term matters
In many private M&A transactions, the buyer obtains a buyer-side policy that can provide recovery for covered breaches after closing. RWI can reduce seller indemnity exposure and support a cleaner exit, but it does not eliminate diligence or cover every risk. Policies contain exclusions, limits, retentions, survival periods and underwriting conditions, and fraud-related subrogation treatment is often negotiated.
What RWI is designed to cover
Acquisition agreements contain representations and warranties about matters such as organization, authority, financial statements, taxes, contracts, litigation, compliance and other business facts. RWI can insure certain losses resulting from covered breaches of those statements.
The policy is separate from the purchase agreement and has its own definitions and claims procedures.
Buyer-side policies are common in private M&A
Recent 2026 SEC-filed agreements show buyers obtaining or reserving the right to obtain buyer-side RWI. These agreements frequently address who pays the premium, whether the policy is required at closing and the insurer’s subrogation rights.
A common seller-protective term limits insurer subrogation against sellers except in cases involving fraud.
Insurance does not eliminate exclusions
Known problems, forward-looking matters and specific high-risk subjects may be excluded or require special underwriting. The policy also can contain a retention—the amount of covered loss that must be absorbed before insurance responds—and an overall policy limit.
Coverage should therefore be mapped against the acquisition agreement and diligence findings.
RWI can change seller recourse structure
When the buyer has meaningful RWI coverage, sellers may negotiate a smaller general indemnity escrow or limited post-closing liability for ordinary representation breaches. Special indemnities, covenants, purchase-price adjustments and fraud claims can remain outside that framework.
The result is often a layered risk-allocation structure rather than a simple replacement of seller liability.
Common mistakes
Assuming every representation is insured Policy exclusions and underwriting decisions can leave material gaps.
Treating RWI as a diligence shortcut Insurers expect diligence, and known issues may be excluded.
Looking only at the policy limit Retention, survival period, exclusions, claims procedures and subrogation terms can be equally important.
Example
A sponsor acquires a company for $250 million and buys a buyer-side RWI policy with a negotiated limit and retention. After closing, it discovers a covered breach of a seller representation that causes a qualifying loss. Subject to the retention, exclusions and policy procedures, the buyer may pursue the insurer rather than relying solely on seller indemnification.
Example
A sponsor acquires a company for $250 million and buys a buyer-side RWI policy with a negotiated limit and retention. After closing, it discovers a covered breach of a seller representation that causes a qualifying loss. Subject to the retention, exclusions and policy procedures, the buyer may pursue the insurer rather than relying solely on seller indemnification.
Professional note
RWI is not a substitute for reading the acquisition agreement or performing diligence. Coverage is only as broad as the policy language, and known issues identified during diligence may be excluded or handled through separate indemnities, price adjustments or special escrows.
Related terms
- Side Letter
A side letter is an agreement between a private-fund sponsor or related party and a specific investor that grants, clarifies, modifies or supplements rights or obligations beyond the generally applicable fund documents.
- Due Diligence
Due diligence is the structured investigation of a potential investment or acquisition to test information, identify risks and validate the assumptions supporting valuation and deal terms.
- Escrow
In an acquisition, escrow is an arrangement in which money, securities or other property is placed with an independent escrow agent and released according to agreed contractual conditions.
- Holdback
A holdback is a portion of acquisition consideration that is not paid immediately to the seller and is retained or set aside for specified post-closing obligations or claims.
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