DealLawyers.com Blog

Lowenstein Sandler recently issued this report on the state of the RWI claims marketplace and how it has evolved since the firm’s 2020 report on RWI claims experience.  The report says that there have been some pretty significant changes over the past three years, and that from a buyer’s perspective, those changes aren’t for the better. Here’s an excerpt from the intro:

The most significant change is in how R&W insurers approach claims. While buyers increasingly need access to RWI for claim payments because sellers will not provide traditional indemnification, securing payment for claims has become much more challenging—it takes several years to get paid, the claim process is adversarial and resource-intensive, claim payment values are coming down, and more litigation and alternative dispute resolution (ADR) proceedings appear to be on the horizon.

Our survey also revealed an important and surprising trend about why it is taking so long to navigate the claim process: insurers are digging into the fundamental issue of whether a breach has even occurred and then getting bogged down in how to value the loss that flows from the breach. Policyholders are perplexed and frustrated because they expect R&W insurers to understand the deal, the nature of the business operations, and the risks that were assumed when the R&W policy was sold.

In other words, the RWI claims market is headed in the direction of becoming a commoditized insurance product that does not fit the needs of M&A stakeholders, who expect the RWI policy to function as an effective and responsive risk-transfer solution.

The report makes the point that dealmakers expect speed, ROI and rational commercial behavior and aren’t interested in having to litigate a claim or re-diligence a deal through the claims process, and cautions insurers that an immediate course correction is necessary to ensure that consumers of the RWI product continue to see value in it.

– John Jenkins