August 17, 2020

R&W Insurance: Do Insurers Pay Claims?

I’ve blogged a lot about R&W Insurance, and with good reason – it’s become a central part of the deal process for private company M&A. But until now, I haven’t seen a resource that provides a solid answer to the most fundamental question about these policies: do the insurers pay the claims that are made under them?

Lowenstein Sandler surveyed nearly 150 representatives of buyers & sellers of R&W insurance in an effort to gain an answer to that question – and its recent report on that survey’s results says the answer is a qualified “yes”:

While R&W policies have proliferated, a key question remains unanswered: Do insurers actually pay the claims? The answer is “yes”–with some caveats.  A common hurdle to clear is incurring a loss that exceeds the SIR. Our survey revealed that more than two-thirds of all respondents said that all the claims fall within the retention and therefore do not result in payment by insurers.

For claims that do exceed the retention, our survey confirmed that R&W policies provide value to buyers. Indeed, the data shows buyers are able to negotiate with insurers to secure at least partial payment for the vast majority of claims that exceed the SIR.

According to the report, 87% of respondents said at least a partial payment was negotiated for all R&W claims that exceeded the self-insured retention. The report also offers buyers practical guidance to consider when presenting a claim under an R&W policy.  If you’ve ever dealt with an insurance company, you probably won’t be surprised to find that one of the key pieces of advice is don’t take “no” for an answer:

Our survey reveals that R&W insurers routinely issue knee-jerk claim denials, but those denials are the beginning, not the end, of the conversation. Ultimately, by challenging an early disclaimer of coverage, most buyers are able to turn the denial into a claim payment.

John Jenkins