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Representations and Warranty Insurance


Overview

Carlton Fields has a sophisticated nationwide practice representing issuers of representations and warranties insurance in M&A transactions.  Our uniquely experienced, multidisciplinary team  has extensive experience, including successful arbitrations through final awards presented before the two largest arbitration managers in the United States.

Our Cohesive and Multidisciplinary Team

Our team combines the coverage experience of our insurance practitioners with the detailed analysis and understanding of the deal developed by our corporate securities and M&A attorneys to bring to each claim analysis the level of critical expertise needed to evaluate these complex claims.  We add our experienced M&A litigators when claims go to arbitration or court. Additionally, our attorneys have worked extensively with national forensic accounting firms that have the most experience in M&A Transactional Loss analysis and R&W Insurance.  If our client does not already have a forensic professional engaged, we match the capabilities and resources of the best firms to the requirements of the individual case.  Our multidisciplinary team, by combining the right talent and experience, enables us to deliver innovative, cost-effective, and value-driven services in one stop for our clients.

The Right Team, the Right Experience and Demonstrated Results

Our attorneys have handled dozens of RWI matters, and we have the distinction of having tried successfully two significant arbitrations against prominent private equity firms through final award before JAMS and the American Arbitration Association, both in New York. In both cases, we obtained favorable results that represented fair and reasonable evaluations of the Losses that followed from the particular warranty breaches established, concluding the matter well below the range of Claimants’ demands that sought to inflate the damages well beyond what was rightfully due under the circumstances.  Our team is presently representing an insurer in one of the few RWI disputes filed in court, presently pending in New York State Supreme Court in Manhattan.

Assisting Insurers with Effective Claims Response

Carlton Fields’ multidisciplinary approach to handling RWI claims enables insurers to respond effectively to both buyers’ and sellers’ coverage claims. Typically, handling these claims involves:

  • Policy analysis;
  • Interpreting the subject acquisition agreement;
  • Focused knowledge of Delaware and New York contract law;
  • Fact-based investigation into the claimed breach (e.g., Financial Statements and GAAP, tax issues, product failures, regulatory investigations, compliance with laws, etc.);
  • Fact-based reviews of Acquisition Agreement terms and limitations negotiated by the parties to the deal and their application to the claims;
  • Valuation of damages; and
  • Protecting against potential bad faith claims.

A Disciplined Approach

Our attorneys take a disciplined approach to right-sizing claims. We start with an initial claim review and develop a program to obtain the information needed to reach a coverage determination. We add value by our Team’s M&A analysis to assess whether claimed breaches have occurred, and then work with subject matter experts who evaluate the potential Losses resulting from any established breaches, and who create an appropriate damages model that will be critical in the final analysis.  We also take the necessary steps to ensure the process is targeted and efficient.  Insureds and the brokerage community appreciate our clients’ efforts to achieve minimally invasive investigations, generating timely responses.

Financial Statement claims often involve the assertion of a multiple of a shortfall from represented EBITDA as a claimed measure of recoverable damages.  We review the pricing and valuation methodology used by the insured before closing.  In many cases, we find the insured was focused more on what the investment would earn for them during their expected holding period and not on what it produced for the seller during its holding period.  Breaches that would not affect future performance — those arising as a result of nonrecurring items — would not qualify for multiple based damages.  We find this methodology resonates with neutrals who have expertise in accounting and business valuation.
 

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Disclaimer

The information on this website is presented as a service for our clients and Internet users and is not intended to be legal advice, nor should you consider it as such. Although we welcome your inquiries, please keep in mind that merely contacting us will not establish an attorney-client relationship between us. Consequently, you should not convey any confidential information to us until a formal attorney-client relationship has been established. Please remember that electronic correspondence on the internet is not secure and that you should not include sensitive or confidential information in messages. With that in mind, we look forward to hearing from you.