Aimee B. Davis Law P.C.

What is M&A Transaction Insurance?

{4 minutes to read}  When I began my career in Big Law, M&A insurance didn’t exist. About 15 years ago, private equity firms began using it when acquiring companies.



Before that, buyers sought protection against losses resulting from misrepresentations made by sellers in asset or stock purchase agreements (an “M&A Agreement”) by using escrow holdbacks, earn-outs, or other deferred purchase price mechanisms.

What is M&A insurance?


Also known as Transaction Insurance, Representation & Warranties Insurance, or Warranty & Indemnity Insurance, M&A Insurance is a specialized insurance product designed to indemnify the insured against losses resulting from a breach of representations and warranties, which is used by both buyers and sellers to mitigate risk and facilitate the closing of a deal. Such insurance is a powerful tool enabling the parties to shift the risk of financial loss to the insurance company, giving sellers certainty over receipt of the sale proceeds and providing certain strategic benefits to buyers.


As the use of M&A insurance has become mainstream, the underwriting process has also been streamlined and made more efficient. In today’s M&A environment, the underwriting process is conducted concurrently with legal and financial due diligence. Attorneys should expect the underwriters to focus their attention on financial, insurance, tax, cybersecurity-related, and environmental matters, as well as global operations and healthcare transactions, if any. It makes good sense for the M&A attorney to review the insurance policy and its exceptions because the attorney drafting the M&A Agreement is in the best position to understand what would constitute a loss.  The M&A attorney should confirm that the definition of losses under the policy tracks the purchase agreement. 


When the indemnity provisions in an M&A Agreement are backstopped by an M&A insurance policy, there is generally less negotiation of seller’s representations and warranties. Since these policies typically scrape materiality qualifiers (giving insurers one less thing to argue about), they also reduce the need for attorneys to argue about including such materiality qualifiers in the M&A Agreement. This allows attorneys to focus more attention on representations and warranties that will fall under an exception to the policy.  


Other trends resulting from the use of Transaction Insurance in M&A deals are: shorter indemnification survival periods, or possibly no indemnification covenants being granted at all. This is because M&A insurance policies typically include a coverage period of three years for general representations and warranties, and six years for fundamental representations (such as existence, good standing, no liens, capitalization, power and authority, and tax liabilities). In deals where M&A insurance is not obtained, one typically sees only a one-year or 18-month survival period. As such, obtaining Transaction Insurance ensures a longer tail period of coverage, and policyholders can also purchase an extension of the policy to extend the coverage period further. With M&A insurance, my understanding is that indemnity escrow agreements, with portions of the purchase price being held back, are disappearing.


It’s important to understand that M&A insurance policies are not written on standard forms. Each carrier’s form is different and the policies themselves are often tailored for the specific business, industry, and the deal at hand.  These policies typically respond on a claims-made basis. The insurer has no duty to defend, and the parties can’t settle a dispute without first obtaining the insurer’s consent. For the insurance to respond to a claim, the parties are required to mitigate damages and preserve their rights. Known breaches will always be excluded from coverage. 


Have you used M&A insurance in any of your deals?

Aimee B. Davis Law P.C. is committed to advising its clients and resolving issues relating to the legal and business matters that are important to them. If you have any questions, please feel free to contact us at (917) 617-2243 or email

Aimee B. Davis Law P.C.

122 Ashland Place
Brooklyn, NY 11201