DealLawyers.com Blog

In a recent Business Law Today article, Woodruff Sawyer’s Yelena Dunaevsky highlights an unusual complaint that an RWI insurer recently filed against a seller and certain of its officers in an effort to enforce the insurer’s right of subrogation. Here’s an excerpt:

The complaint relates to a transaction where [Liberty Surplus Insurance Corporation] served as the representations and warranties insurance (“RWI”) carrier and paid a $12.2 million claim pursuant to an RWI policy after the purchaser in the transaction discovered that the seller had engaged in fraudulent activities. While RWI policies typically cover seller fraud, they also reserve a right for the insurer to subrogate against the seller if fraud occurs. Insurance carriers very rarely exercise this right because (1) fraud is very difficult to prove and (2) carriers do not want to earn a reputation of being tough on the sellers. However, in this case, the facts must have been such that Liberty could not avoid subrogating.

In a LinkedIn post about the lawsuit, Hunton Andrews Kurth’s Geoffrey Fehling highlights a key takeaway from the complaint’s naming of individual D&Os as defendants:

Those claims against individual D’s and O’s underscore the importance of maintaining robust D&O tail coverage after M&A deals for alleged/unproven fraud (conduct exclusions) and a range of potential losses (definition of “Loss” and related carve outs), among other issues. Because the insurer also points to post-closing acts in its complaint, the lawsuit could also result in D&O coverage issues if the runoff/tail endorsement did not account for “straddle” claims based in part on acts or omissions after the deal closed.

– John Jenkins