The Dutch and American economies are interconnected, as the United States is one of the Netherlands' most significant foreign investors. As such, it's important to examine how representations and warranties insurance (RWI) in mergers and acquisitions (M&A) compare in both countries.

RWI policies have become a standard tool in acquisitions over time, including middle-market transactions. The reason is straightforward: RWI is beneficial for both the buyer and the seller. The buyer receives assurance that if the seller breaches certain representations or warranties, the insurer assumes the risk up to the policy limit (generally 10-20% of the transaction value) and pursues subrogation claims against the seller. The seller typically receives more of the purchase price at closing because less consideration is required to be held in escrow or as a holdback to secure potential indemnification obligations. For example, a typical premium for an RWI policy is approximately 3% of the policy limit.

RWI policies impose cumulative requirements for claims, typically focused on:

• Breach: A breach of an insured representation or warranty.
• Loss: Damages or other covered losses resulting from the breach.
• Timeliness: Notice and claim filed within the applicable policy period.

The US: A Mature Market With Sharper Disclosure Rules

RWI has become a fixture in everyday mergers and acquisitions practice in the United States since its introduction into the mainstream commercial insurance marketplace. U.S. attorneys generally prefer RWI-backed transactions because such coverage provides peace of mind to the parties and a more stable foundation for negotiations. Attorneys representing both buyers and sellers report reduced negotiation time on critical terms such as indemnification caps, survival periods, materiality qualifiers, escrow amounts, and basket thresholds. 

The RWI policy reduces this friction by transferring to the insurer the post-closing indemnification risks that would otherwise be allocated between the buyer and seller. However, RWI is not a one-size-fits-all solution and, like any insurance policy, contains certain exclusions. Before issuing policies, RWI insurers conduct thorough due diligence and add specific terms and conditions on a case-by-case basis.

Approximately 78% of RWI claims involve breaches relating to financial representations, contracts, and compliance matters. While tax claims comprise a smaller percentage, they can be particularly costly, and potential tax liabilities should therefore be subject to thorough third-party due diligence. The shifting tariff environment is adding volatility to M&A opportunities, and insurers are incorporating tariff risk into their underwriting approach. Insurers are generally not imposing blanket exclusions but seek to understand how the buyer views tariff-related risk from a valuation perspective, including impacts on supply chain, transaction timing, and post-closing integration strategy.

Recent case law has also provided clarity regarding the method of disclosure necessary to establish a breach of representation. Courts have held that disclosures made outside the purchase agreement, or included only in broad, general terms within it, do not affect whether a representation was breached. Accordingly, formal and detailed disclosure in the disclosure schedules to the purchase agreement is essential and is critical to preserving the ability to make claims under the RWI policy.

The Netherlands: A Growing Market Meets Its First Claims

The Dutch RWI market has matured significantly in recent years and evolved from a niche product into a standard tool in nearly 60% of mid-market M&A transactions due to relatively low premiums, broad coverage, and fast turnaround times from insurers.

In light of the foregoing, the first RWI claims in the Netherlands have made their way through the courts.¹ The most notable trend in Dutch case law relates to disputes over whether, and to what extent, there has been a breach of the insured warranties. One key observation from the courts is that a specific warranty must be formulated clearly (for example, the definition of “Material Agreements” should specify which agreements fall within that category) and unambiguously in order to establish a breach. The claim must involve a specific breach of warranty covered under the policy.

Another critical point is to explicitly establish the causal relationship between the warranty breach and the loss. It is particularly important to provide the courts with a clear basis for determining the causal link. For example, the purchase agreement might include an explicit clause stating that the warranties given by the seller are of material importance to the purchaser’s decision to acquire the shares on the specified terms.

What Dealmakers Should Know

• The RWI policy does not replace the purchase agreement, so be precise and unambiguous when drafting the warranties.
• When working with an insurer, pay particular attention to the definitions of breach, loss, and the applicable time period for making claims under the policy.
• Ensure that all matters are disclosed in detail in the disclosure schedules.