James D. Epstein Quoted in Axial Forum Article, 'The Rise of Reps and Warranties Insurance in the Lower Middle Market'
James D. Epstein, a partner with Pepper Hamilton, was quoted in the March 22, 2016 Axial Forum article, "The Rise of Reps and Warranties Insurance in the Lower Middle Market."
James Epstein, a partner at Pepper Hamilton LLP, explains that there are two kinds of policies: a buyer's and a seller's policy. A seller's policy is a backstop against its obligations to pay an indemnity claim to a buyer.
A buyer's policy is obtained with the assistance of the seller. Often a seller pays a portion of the premium and a portion of the retention amount is put in escrow to support the indemnification in a transaction. Insurance companies often want to see sellers have skin in the game — while there is a range, usually about 1% of the enterprise value is the retention or deductible under the policy.
Since it's a known entity, and typically a small amount of money in the context of the overall transaction, Epstein says that this is one of the reasons why RWI is becoming more popular in the US.
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RWI isn't a cure-all. Not every deal can be covered. Pepper Hamilton's Epstein says that those buying the insurance need to realize that it does not cover all claims including certain employee and health care matters, and certain tax claims.
There's another warning too. "Although there's a growing acceptance of the use this type of a tool, it's not a substitute for buyers doing their due diligence," Epstein says. "What they want to buy are good companies and not buy claims."
Content contributed by attorneys of Troutman Sanders LLP and Pepper Hamilton LLP prior to April 1, 2020, is included here, together with content contributed by attorneys of Troutman Pepper (the combined entity) after the merger date.