I recently posted the following on the M&A Forum at LinkedIn, and thought it might be of interest to our readers.
Question on Forum: "I have heard of insurance designed expressly to provide coverage for the breach of a representation or a warranty contained in a Purchase and Sale Agreement, as a replacement for contractual indemnity and escrow agreements. If you have used it in any transaction, I am very interested if you could share your lessons learned."
My Response: "I have used this successfully to allow a seller to gain comfort he can totally walk away from any likely post-closing claims. It can also work in favor of the buyer, as the buyer becomes the named insured and can therefore just make a claim against the policy if needed. Both sides are happy, and the cost has come down dramatically since I first used this in 1999. I think that is because insurers are more comfortable with the concept. One drawback is the insurance cannot be written until the purchase agreement is complete, so this can lead to additional delay, and some uncertainty as to whether the policy will actually be issued."