Four Tips for a Smoother R&W Claim Recovery Process

Since 2013, the Aon’s Transaction Solutions practice has seen more than 580 representations and warranties (“R&W”) insurance claims, and in the last three years alone we have assisted with claim resolutions resulting in payments totaling more than $400 million for our North American clients. However, despite growing use of the R&W insurance solutions, many Aon clients have not yet dealt with a R&W claim and do not know what to expect from the process. Based on our experience advocating on behalf of our clients through many of these claims, we have identified a few areas where common pitfalls can be avoided to help ensure a smoother path to claim resolution.

1. Do not delay in submitting notice of a claim

Throughout the R&W claim process, communication with the insurer is key. This starts when the policyholder becomes aware of a breach or potential breach of the transaction agreement. We typically recommend that a policyholder submits a claim to the insurer as soon as possible after they have sufficient knowledge and information to confirm the reasonable likelihood of a breach, even if the resulting loss is still being determined. Unlike some other insurance policies, there usually is no downside to submitting a claim under a R&W policy. Each R&W policy is transaction specific, meaning there is no renewal process during which claim history may be scrutinized. An ordinary claim on one transaction is unlikely to influence an insurer when underwriting a separate future transaction.

In our experience, R&W insurers have very rarely denied a claim on the basis of a failure to provide timely notice. However, informing the insurer early on of any issues that the policyholder encounters has proven to be important to ensuring that all potential avenues of mitigation can be considered and insurer input can be given in a timely manner. For example, when an insurance carrier is kept up to date in real time about new developments, they are better able to react quickly to weigh-in or provide consent in time-sensitive situations, such as a settlement with a third party. In addition, this also usually means that the insurer has early notice about any costs that are being incurred by the policyholder to deal with the breach, which can prevent a situation where an insurer feels prejudiced by actions taken or costs incurred without their knowledge.

2. Preserve, Compile and Assess Supporting Information and Documents

One potential area of friction in the R&W insurance claim process relates to the detailed investigation that often is undertaken by insurers to confirm that there is a breach and that the resulting loss is covered by the policy. When a policyholder is faced with a breach that has led to notable damages, it may appear very clear to them what has taken place, how it has resulted in a breach of the transaction agreement and why the loss calculation methodology is appropriate. However, when a claim is filed with the R&W insurer, it is important to bear in mind that the claims professionals are different from those who underwrote the deal and are learning the details of the transaction and the claim from the ground up.

Policyholders can be proactive at the start of the R&W claim process by taking steps to preserve, compile and assess the information and documents that provide support for the breach and associated loss. Try to consider the facts and supporting information from the viewpoint of a third-party starting from a place of limited knowledge and assess gaps in information as well as potential inconsistencies or facts that could be interpreted in more than one way. Pulling the information together in a way that is easy for the insurer and its advisors to understand and being prepared to address grey areas, inconsistencies and possible questions can go a long way to making an investigation progress more smoothly and efficiently.

3. Determine how best to support the loss calculation both before and after a claim arises

When Aon reviewed its North American R&W insurance claims data at the end of Q3 2021, only about 3.75% of all claims had resulted in a denial by the insurer. Most of these denials resulted from deal-specific exclusions that were contemplated during the underwriting process. While denials remain rare, we have seen many claims where the policyholder and the insurer disagree about the quantum of loss arising from a breach, in particular where loss calculations have added complexity because the alleged loss is more than just dollar-for-dollar.

Where a policyholder alleges that a breach has led to recurring loss or a diminution in value of the target company and seeks to apply a multiple to calculate the damages, the insurer will take a close look at the transaction valuation documents (I.e., internal presentations such as an investment committee memo, board minutes, presentations to lenders) as part of its investigation to confirm the appropriate damages methodology.

When a claim alleges that a breach has impacted the value of the target company, insurers may also pay close attention to the deal negotiation process and could ask whether changes to the TTM EBITDA or other factors driving the valuation resulted in corresponding changes to the purchase price. This is something that a policyholder should be prepared to discuss with the insurer during the claim process and expect that an insurer may question a situation where the EBITDA being used to value the deal changed during the negotiation process but the purchase price did not. While in our view this should not be determinative of whether the loss alleged is valid, it is an area we have seen insurers focus on when evaluating an insured’s claim.

Finally, as additional support during discussions and potential negotiations with the insurer, a policyholder may consider hiring a forensic accounting expert to assist with the calculation of loss for complex claims. Situations where this may be warranted include breaches of the financial statements representation, a claim where the quantum is expected to be large, or the claim involves a multiple or other manner of calculating loss that is not dollar-for-dollar. Experts also may be helpful when a breach involves an esoteric issue, such as compliance with a law or regulation or whether the condition of an asset. The assessment of whether it is worthwhile to retain this type of expert should be done on a case-by-case basis, but it may assist a policyholder in some instances to have an outside objective party help pressure-test the claim and the methodology for calculating loss, as well as identify various strengths and weaknesses. The costs to work with an expert may ultimately be reimbursed under the R&W policy where the covered loss exceeds the policy retention and the language allows for it.

4. Beware of insurer rights under the R&W policy when negotiating a settlement

Many R&W policies do not require the policyholder to pursue recourse against the seller in order to make a recovery from the insurer. However, in the event that the settlement of an indemnification or other claim against the seller is being negotiated, it is important to remember the insurer’s subrogation right against the seller that is provided by the R&W policy. This right exists in the event of seller fraud (as specified in the policy) and only to the extent that the insurer makes a payment under the policy. However, even in cases where there is no clear indication of fraud, insurers often are reluctant to give up this right and agree to a global release of the seller before its investigation is complete. If a policyholder does reach a settlement with the seller on a claim with the potential to result in a payment under the R&W policy, a release containing a carve-out for claims arising out of fraud generally avoids this issue, though it is a good idea to get the R&W insurer’s sign-off on any release language in advance of the agreement being finalized. If a seller insists on a full release, we recommend alerting the insurer as soon as possible and engaging in discussions to determine what information is needed for the insurer to consent to the language. Of course, in a claim situation where there is an indication of potential fraud by the seller, be prepared for substantial pushback from the insurer to a request to release its subrogation right.

When discussing a potential settlement with a third party that is not the seller, keep in mind that R&W policies typically require consent from the insurer in order to proceed and that the insurer will want to understand why the settlement is reasonable. Sometimes the consent requirement will apply to any settlement with a third party, while other policies will establish a threshold settlement amount above which consent is required. To avoid undue delay in finalizing the settlement once it is reached, we recommend keeping the insurer updated about settlement discussions and negotiations. This includes advising the insurer of any counteroffers, especially where it is anticipated that some or all of the ultimate settlement amount will be paid by the policy.


In our experience, a proactive approach to the R&W insurance claim process through a careful assessment of a claim and the associated loss calculation is key to ensuring a faster and smoother recovery. When the policyholder is aware of the claim’s strengths and weaknesses and likely areas where questions may be asked, they can more adeptly navigate the investigation and better guide the insurer to the important facts, avoiding unwarranted focus on “red herring” issues.

Also important is early and regular communication with a R&W insurer about a claim, or potential claim, as this can prevent issues with an insured undertaking actions that might prejudice an insurer without their knowledge. A key example of this is being aware of obligations under the policy with respect to settlements with the seller and third parties.

The R&W insurance recovery process is unlike that of other insurance policies and given its complexity, we recommend that policyholders involve their insurance broker early on a claim and consider retaining experienced counsel or other experts to assist them in making a claim and reaching a resolution.

Stephen Davidson

Managing Director/Head of Claims /
Head of Litigation and Contingent Risk

Jennifer Drake

Senior Vice President
M&A and Transaction Solutions

Anthony Dragone

Senior Vice President
M&A and Transaction Solutions

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