Representation and Warranty Insurance is rapidly gaining traction in real estate transactions, offering a forward-thinking alternative to traditional indemnification and representation clauses in sale agreements.

While historically utilized in mergers and acquisitions, R&W Insurance is now making significant inroads into standard real estate purchases and sales.

Benefits for Buyers and Sellers

R&W Insurance can be acquired by either the seller or buyer in a real estate deal. For sellers, R&W Insurance provides liability coverage, safeguarding against claims related to breaches of representations and warranties. For buyers, this insurance protects against alleged breaches by the seller and offers coverage for representations the seller is unwilling to make.

Notably, R&W Insurance can extend beyond the typical 6-12 month duration of a seller’s representations and warranties, mitigating risks when purchasing from a single-purpose entity lacking assets for post-closing claims.

A buyer policy can benefit the seller by enabling a clean exit from the transaction without post-closing liability, as insurers often waive subrogation rights against sellers (excluding fraud). This flexibility allows for the cost of R&W Insurance to be a negotiable component of the sale agreement.

As the R&W Insurance market evolves and becomes more efficient, real estate professionals should familiarize themselves with this valuable tool. R&W Insurance is particularly advantageous for complex deals with heightened risk, effectively transferring such risk to a third-party insurer, and offering substantial benefits to both buyers and sellers.

If you have questions about R&W Insurance, contact Zachary W. Berger at 215.918.3691 or zberger@foxrothschild.com or any member of the Fox Rothschild Real Estate Department.