The buyer wants us to agree to a massive indemnity escrow and survival period to cover potential operational issues, but we want a clean break at closing. How do we use Representation and Warranty Insurance to limit our post-closing liability?

Question

Tyler Smith · Accepted Answer

A traditional indemnity escrow can tie up ten to fifteen percent of your purchase price for up to two years, leaving you exposed to post-closing disputes. To achieve a clean break, you should introduce Representation and Warranty Insurance, or RWI, into the deal structure. RWI shifts the risk of breaches of your representations and warranties from you to an insurance provider. Under a typical buyer-side RWI policy, the buyer recovers losses directly from the insurer, reducing your indemnity cap to a fraction of a percent of the transaction value. To make your business an attractive candidate for RWI, you must show that your operations are highly organized and thoroughly documented. Use your EOS V/TO and Accountability Chart to demonstrate that your business is run by a professional leadership team that maintains rigorous standards. Present clean, audited financial statements and well-organized corporate records to prove that your operational risks are minimal. The cost of the RWI policy is typically split between buyer and seller, which is a small price to pay for releasing your escrowed funds at closing. By using RWI, you protect your hard-earned wealth, limit your personal exposure, and allow both parties to move forward with confidence, ensuring a clean and secure exit.