An insured distributed dividends from a Spanish entity to a Luxembourg parent entity and sought to rely on a double tax treaty to pay tax in Luxembourg. The insured tax risk arose if the dividends were instead deemed taxable in Spain. The policy was taken out to provide coverage in the event the Spanish Tax Authorities (STA) challenged the tax treatment of the distribution.
Tax Claim
In due course the STA initiated a tax audit, which the insured notified to insurers under the policy terms. The insured engaged with the audit and provided responses to the STA, all with the prior consent of insurers.
The STA duly assessed a liability for withholding tax, alleging that the parent lacked substance in Luxembourg. Insurers provided support for the first instance appeal, which was unsuccessful. Following this, and on the basis the insured was required to pay the alleged tax liability to continue its appeal, insurers paid an Advance Tax Payment to the insured in accordance with the policy terms.
The insured has now filed a second stage appeal in the Spanish Courts and insurers continue to pay defence costs, whilst awaiting a final determination.
Insight
Although early in its life cycle, the specific risk tax product is operating exactly as anticipated, with insurers supporting the dilligenced position by making payments of defence costs and advance tax payments.
References
6 All case studies in this report are hypothetical claim scenarios
based on aggregate factors that the Aon team has seen in practice. The
language of the actual representations in the applicable purchase agreement,
the specific facts of a claim and the coverage afforded by the policy
ultimately will determine the outcome of each scenario.
Scenario
After closing, the Buyer discovers that there are errors in the target company’s financials. These errors include: (1) failing to accrue for costs related to annual plant maintenance; (2) improperly recognizing certain revenue in the trailing twelve months (TTM) period; and (3) overstating the account receivables balance by not writing down impaired collectability risks.
Breach and claims process
The above issues comprise typical breaches of the financial statements representation in the acquisition agreement. The language of the financial statements representation and the standard applied therein (i.e., in accordance with GAAP, industry standard, consistent with past practices, etc.) will control the analysis and claims investigation. The claims process will involve the Insurer’s financial advisor reviewing the material provided by the client’s financial advisor/counsel and then following up with questions aimed at validating breach and the corresponding loss. The challenges that arise during financial statements claims vary greatly but often relate to disagreements over how the breach impacts the buyer’s valuation model, how similar situations may have impacted the purchase price during negotiations, materiality thresholds under GAAP, whether the breach impact is recurring and/or whether the loss valuation is reliant on estimates that were not repped to in the financial statements.
Outcome
Based on our experience, should the above scenario violate the accounting standards provided in the financial statements representation, we would expect the Insurer to recognize breach and loss. Further, we would anticipate that error one (failure to accrue for costs) and error two (improper revenue recognition) would result in more than dollar for dollar loss because those losses are recurring in nature. That recurring loss would likely be based on how the deal was valued. So, for instance, if the deal was valued on an EBITDA multiple then those verified loss amounts would be subject to the same calculation. For error three, we would anticipate that the insurer might take the position that these damages should be reimbursed on a dollar-for-dollar basis, claiming that they are not recurring in nature.
References
6 All case studies in this report are hypothetical claim scenarios
based on aggregate factors that the Aon team has seen in practice. The
language of the actual representations in the applicable purchase agreement,
the specific facts of a claim and the coverage afforded by the policy
ultimately will determine the outcome of each scenario.
Scenario
An insured acquired a target company with several material customers. Following completion, the insured became aware that one of the target’s key customers had in fact terminated its contract with the target prior to signing. The contract represented significant ongoing revenue for the target and was factored into the valuation methodology and the purchase price paid for the target.
The insured submitted its claim to the insurer and breach of the material contracts warranty was quickly established. The policy and SPA were subject to English law and loss was considered on a share-value basis. In order to quantify the loss suffered, both the insured and insurer appointed financial experts, who alongside the parties and their legal advisers considered contemporary evidence of the valuation methodology (which included a multiples basis), the recurring nature of loss given the length of the contract and how the issue would have been dealt with at the time of the transaction, had it been known. Following discussions between insured and insurer, steered by Aon, the parties reached a mutually agreeable commercial compromise and agreed to settle for an eight-figure sum.
Insight
Contemporary evidence of the valuation methodology used in a transaction can be key when advancing a claim with loss on a share value basis. Insurers and insureds will commonly instruct financial experts to consider the quantification of loss, and factors may include the recurring nature of the loss, to what extent the loss is of a type factored into the valuation methodology, how the issue would have been dealt with between the seller and a reasonable buyer had it been known at the time of the transaction as well as the value of the shares and purchase price.
References
6 All case studies in this report are hypothetical claim scenarios
based on aggregate factors that the Aon team has seen in practice. The
language of the actual representations in the applicable purchase agreement,
the specific facts of a claim and the coverage afforded by the policy
ultimately will determine the outcome of each scenario.
Scenario
Post-completion, the insured discovered that there was a third party demand against the target, which was in litigation and where the litigation warranty was considered breached.
The insured submitted its claim to the insurer but did not provide any information or seek the insurer’s consent with regards to significant defence costs being incurred. Aon reminded the insured of the need to involve the insurer in its defence strategy, and the insured settled the third party litigation with the insurer’s involvement and consent to settlement.
Following settlement a discussion followed between insured and insurer on defence costs cover, and Aon assisted the insured in successfully claiming some of its defence costs from the insurer.
Insight
With third party demands it is important for insureds to be aware of insurers’ rights regarding settlement and prior written consent to defence costs, to ensure compliance with policy terms and to avoid curtailing the insured’s own claim.
References
6 All case studies in this report are hypothetical claim scenarios
based on aggregate factors that the Aon team has seen in practice. The
language of the actual representations in the applicable purchase agreement,
the specific facts of a claim and the coverage afforded by the policy
ultimately will determine the outcome of each scenario.
Scenario
An insured submitted its claim notice directly to the insurer without first consulting its broker, who it copied in when submitting the notice. In its drafting of the claim notice, the insured had set out the relevant warranties considered to be breached but only as those warranties were covered under the SPA, not reflecting the seller knowledge scrapes which the insured had purchased as part of its cover under the policy.
Claims Process
Following receipt of the claim notice, the insurer raised various requests for information, including the seller’s knowledge of the issue. Aon flagged to the insured that they were not required to demonstrate seller knowledge as a result of the knowledge scrape enhancement provided under the policy, and assisted the insured in preparing its responses to the RFIs, including setting out that seller knowledge was not required. Breach of warranties was established.
Insight
The policy is the contract agreed between insured and insurer, and should be considered as the first source for the bases of warranties covered, both in relation to scrapes and also in relation to warranty qualifiers.
References
6 All case studies in this report are hypothetical claim scenarios
based on aggregate factors that the Aon team has seen in practice. The
language of the actual representations in the applicable purchase agreement,
the specific facts of a claim and the coverage afforded by the policy
ultimately will determine the outcome of each scenario.
51% of R&W notifications arise more than 12 months post-close, accounting for nearly $700 million of paid losses to date, underscoring one of the key differentiators for RWI when compared to a traditional and 12-month seller escrow. The most common breach types noticed after 12 months are compliance with laws (23%), tax matters (21%), and financial statements (13%). Claims coming in more than 24 months post-close are less common at only 24%.
Deal Size Trends
Figure 18 displays the percentage of claims, paid losses, and overall policies (without consideration of premium rates in those bands) placed within four different enterprise value (EV) bands. Deals with an enterprise value of less than $100 million comprised 41% of the total claims filed on Aon policies while accounting for 34% of all deals. The Aon data has consistently shown a higher claim frequency on deals within the lower enterprise value bands, while experiencing incidences of heightened severity on deals with a higher enterprise value.
These results are in line with Aon’s expectations. Transactions with an enterprise value of less than $250 million are more likely to have a higher frequency of claims given the lower retentions. Conversely, we would expect deals with a larger enterprise value to have greater recoveries as the retentions and available limits on those transactions are larger, and it generally takes a bigger problem to cause a buyer to assert a claim.
Figure 18: Aon Data: Deal Size Trends (2019-2025 inception year)
Notification timing
We continue to track the timing of claim notices in relation to the closing date. As seen in Figure 19, when looking at policies where coverage for general representations has already expired, 49% of claims submitted by Aon clients were noticed within 12 months of closing. For the first time, more than half of claim notices are coming in more than 12 months post-closing. Nearly $700 million of Aon’s total paid loss is attributable to claims noticed more than 12 months post-close. As observed in past Aon claims publications, this demonstrates a key differentiator for the use of R&W insurance compared to a typical one-year seller escrow. The most common breach types noticed after 12 months remain compliance with laws (23%), tax matters (21%), and financial statements (13%). These notifications more than 12 months post-close are predominantly third-party claims, whose discovery timing is outside the policyholder’s control. Examples include various types of audits, and consumer and employee class action complaints.
Figure 19: Aon Data: Time From Closing to Notice Where General Representations Have Expired (2012-2022)
Figure 20: Aon Data: Frequency by Primary Breach Category for Claims Noticed > 12 Months Post-Close (2012-2025)
Key Statistics
Compliance with Laws
23%
23% of claims noticed after 12 months are compliance with laws breaches
Financial Statements
18%
18% of total paid loss is attributable to financial statements claims noticed greater than 12 months post-close
Material Contracts
49%
49% of material claims submitted by Aon clients were noticed within 12 months of closing
Spotlight on Latin America
Spotlight on R&W Claims in
Latin America
The Latin American (LatAm) R&W insurance market continues to mature, with both placement activity and claims experience steadily developing. Submission volumes for LatAm deals increased by more than 50% between 2024 and 2025, reflecting a clear rise in buyer and seller interest in using R&W insurance on deals in the region. This heightened demand has translated into a growing number of insured transactions and is expected to result in a corresponding rise in claim frequency. Currently, there are several ongoing claims, including a handful that have resulted in claim payments. While the regional claims track record remains relatively young and is expected to continue evolving as more policies incept and mature, the underlying insurer capability is well established and we have seen claims as high as eight figures paid to date. The carriers that underwrite R&W policies and handle claims in Latin America have long, successful experience managing a significant volume of claims in North America and EMEA. As a result, insureds in LatAm benefit from seasoned claims handlers with deep product knowledge.
Chapter 1.4
North America
Tax
Analyzes tax insurance claim activity, emerging trends in energy tax credit coverage, and the payment experience showing how tax insurance can respond to contest costs, settlements, and assessed liabilities.
Compliance with Laws 
