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On March 25, 2020, Aon released its <a href="https://aon.com/risk-services/amats/2019rwclaims" target="_blank" rel="noopener">Representations and Warranties Insurance Claim Study</a>, an analysis of representations and warranties insurance (RWI) claims filed over the past several years. RWI has become an increasingly popular transactional insurance tool used in mergers and acquisitions to insulate against post-closing risks. As Aon’s study demonstrates, RWI offers buyers and sellers in M&amp;A transactions more than just theoretical protections – as more and more of them use it, insurers are standing behind the product and paying out on these policies. Aon studied about 340 claims made on more than 2,450 RWI policies placed by Aon in North America between 2013 and 2019. The results are informative and provide assurance for market participants who continue to rely on this emerging product.

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As market leaders in representing insureds in the RWI claims process, we have seen similar trends. Although RWI is most frequently used in private equity or financial sponsor deals (about 75% of these deals), its use in North American deals of all sizes is increasing year-over-year, resulting in more and more RWI insurers in the market offering an expanding number of coverage options. We find many of our corporate and strategic buyers now regularly using RWI to guard against downside risks in acquiring new businesses, which is consistent with industry figures that show 34% of North American deals in 2018 utilized RWI.

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Consistent with Aon’s data, our claims experience indicates the RWI product is working as intended. The underwriters insuring our clients are paying out on valid claims supported by evidence, allowing our clients to recoup losses more efficiently and economically than in a traditional post-closing M&amp;A dispute.

As insurers increase their use of legal counsel to help resolve RWI claims, hiring experienced outside counsel can provide insureds with a significant return on investment. We frequently assist our clients in all facets of the RWI process, including conducting investigations, providing seller notifications, filing claims, negotiating with RWI insurers and advising on parallel indemnification actions, and we have obtained several favorable outcomes for clients seeking remuneration under RWI policies.

Tony J. Rospert 216.566.5861 <a href="mailto:Anthony.Rospert@ThompsonHine.com">Anthony.Rospert@ThompsonHine.com</a>

Melanie M. Lazor 513.352.6554 <a href="mailto:Melanie.Lazor@ThompsonHine.com">Melanie.Lazor@ThompsonHine.com</a>

Kyle Hutnick 216.566.5652 <a href="mailto:Kyle.Hutnick@ThompsonHine.com">Kyle.Hutnick@ThompsonHine.com</a>

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

This document may be considered attorney advertising in some jurisdictions.

Representations and Warranties Insurance: Trends and Benefits

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