Representations and Warranties Insurance covers loss resulting from breaches of representations and warranties made by the parties to a variety of business transactions, including mergers, aquisition, stock or assets sales and leases. The insurance is most frequently purchased in connection with mergers and aquisitions ("M&As"). Like LMUs, this is a relatively new and creative insurance product that can provide valuable benefits to both parties to the business transaction.

Advantages of Seller Policy. An R&W Insurance Policy purchased by the Seller can afford true closure for the Seller regarding the transaction. For example, the Policy can:

• Virtually eliminate the Seller's contingent liability exposure for potential breaches of R&Ws;
• Eliminate the need for the Buyer to hold back or place into escrow a portion of the purchase price, thereby allowing the Seller unlimited use of the full purchase price immediately after closing.

Advantages of Buyer Policy. An R&W Insurance Policy purchased by the Buyer can create the following benefits:

• Afford to the Buyer a competitive advantage over the bidders for the Seller's assets by enabling the Buyer to pay the full purchase price to the Seller at closing (without any hold back or escrow);
• Create for the Buyer an easily accessible source of collection for future breaches of R&Ws in lieu of pursuing the Seller.

In other words, an R&W Insurance Policy can facilitate the negotiation of a transaction by bridging a gap between the parties and can allow the Seller to immediately access the full purchase price. Therefore, the cost of such a Policy should be evaluated primarily based on the Policy's importance to the transaction and the Seller's cost of capital.