The buyer is insisting on purchasing Representations and Warranties insurance but wants us to pay the entire premium and accept a high survival period for fundamental reps. How do we split these transactional insurance costs and structure the indemnity caps to limit our post-close liability?

Question

Tyler Smith · Accepted Answer

Representations and Warranties insurance is an excellent tool to limit your post-close indemnity exposure, but the cost allocation and policy terms must be negotiated fairly. A buyer will often try to pass the entire premium, underwriting fee, and broker fee to you, while demanding that you remain liable for any deductible or retention amount.

To structure a fair deal, negotiate a fifty-fifty split on all insurance-related costs. This reflects that both parties benefit from the transaction policy: you get a clean exit with a tiny post-close indemnity cap, and the buyer gets a creditworthy insurer to back up their claims.

Furthermore, you should insist on a true walk-away structure. This means the buyer's sole recourse for any breach of general representations is the insurance policy itself, with your liability capped at zero dollars, or a nominal amount equal to a portion of the policy retention. For fundamental representations, such as ownership of the company and tax compliance, limit your exposure to the amount of the policy retention and align the survival period with the statute of limitations. This keeps your cash secure and prevents the buyer from clawing back your hard-earned proceeds.