Written by: Malakut, Philip Frerks, Marcus Wolter, and Elizabeth Bestwick

Transactional risk insurance has become a core feature of modern M&A, particularly in cross-border deals where differing legal traditions, disclosure norms, and risk tolerances can complicate negotiations. While warranty and indemnity insurance (W&I) and representations and warranties insurance (RWI) serve the same fundamental purpose, avoiding sell-side liability while protecting buyers against unknown historical risks, their structure, pricing, disclosure mechanics, and underwriting processes differ meaningfully between Europe and the United States.

Understanding these distinctions is critical for buyers and sellers navigating transatlantic transactions, where the choice of insurance product can materially shape deal economics and post-closing risk allocation and where the governing law of the purchase agreement generally determines whether W&I or RWI is the relevant solution.

Economic Terms: Pricing, Retention, and Duration

One of the most visible differences between W&I and RWI lies in cost and retention structure. European W&I policies are generally less expensive, with premiums typically ranging from approximately 0.5% to 1.5% of the insured limit, compared to 2.5%–3.5% (or more) for US RWI. Retentions also tend to be lower under W&I, often 0.15%–0.5% of enterprise value, with no applicable retention for fundamental warranties and frequently include a “tipping to nil” feature, under which the insurer pays losses from the first dollar once the retention threshold is exceeded.

By contrast, RWI retentions are usually higher at signing (around 0.4%–0.5% of enterprise value), though they commonly “drop down” after 12 months. Tipping baskets are generally unavailable in the US market, but nil retention for fundamental representations is sometimes negotiable.

Survival periods also differ modestly. W&I policies typically provide three years for general warranties and seven (sometimes ten) years for fundamental and tax warranties as well as tax indemnities, while RWI more often provides three years for general warranties and six years for fundamentals and tax.

Disclosure Mechanics: A Fundamental Divide

Perhaps the most consequential difference between W&I and RWI lies in how disclosure is treated.

In European transactions, it is customary for data room materials, and often buy-side diligence reports, to be deemed disclosed against the warranties. W&I policies generally adopt this approach so that both data room content and the due diligence reports are always deemed disclosed under the policy significantly narrowing the scope of coverage unless specific enhancements are negotiated. This reflects a more seller-friendly, “buyer beware” tradition in European dealmaking.

US RWI follows the opposite model. Neither the data room nor buyer diligence reports are automatically deemed disclosed. Instead, the burden is on the underwriter to identify issues during diligence and either expressly exclude them or deem them disclosed. This approach results in broader default coverage and places greater responsibility on insurers during underwriting, rather than on buyers post-closing.

Coverage and Exclusions

These disclosure differences are reflected in coverage breadth. W&I policies typically include a greater number of standard and deal-specific exclusions, some of which would be unusual in US RWI policies, such as exclusions for product liability and recall, cyber risks, condition or sufficiency of assets, and certain labor law matters.

RWI policies, by contrast, tend to have fewer exclusions overall, with deal-specific exclusions applied more narrowly. Loss definitions are also generally broader under RWI, often allowing recovery for consequential damages, diminution in value, and lost profits unless expressly carved out in the transaction agreement. That said, also in that regard the differences are fading away. So-called indirect damages are now also often covered under W&I policies.

Purchase Agreement Interaction and Synthetic Features

European transaction agreements usually contain short, discrete warranties, often accompanied by a warranty-by-warranty coverage spreadsheet in the W&I policy mapping which warranties are covered, partially covered, or excluded. US purchase agreements typically rely on longer, overlapping representations, with no corresponding coverage matrix.

W&I policies are also more flexible in offering enhancements, allowing buyers to negotiate features that move the policy closer to US-style RWI coverage. Common enhancements include materiality and knowledge scrapes, interim breach coverage, extended survival periods, synthetic non-disclosure of the data room, and synthetic indemnity-style loss calculations. While these enhancements provide valuable customization, they also narrow the traditional cost advantage of W&I as coverage converges toward RWI norms.

Underwriting Process and Seller Involvement

Underwriting mechanics further distinguish the two markets. W&I underwriting is typically written question driven, iterative, and may take one to two weeks, with calls used only to resolve open issues. RWI underwriting is more call-centric and compressed, often completed within a week following a single diligence call and limited follow-up.

Seller involvement also differs. In European auctions, sellers frequently commission third-party diligence and may initiate the insurance process through “soft-stapled” or “hard-stapled” policies. In the US, RWI remains overwhelmingly buyer-led, with buyers commissioning full diligence and controlling insurer engagement.

However, in our experience, sell-side DDs are rare; even if a process starts on sell-side and the policy flips to the buy-side at some point, the sell-side exercise usually does not go beyond gathering NBIs etc. Real stapled policies are more common for bigger, more competitive auctions.

Market Trends: Insurance as a Deal Enabler

Beyond these structural differences, broader market trends underscore why transactional risk insurance, whether W&I or RWI, has become central to M&A certainty. Global placements have expanded rapidly, driven by competitive auction dynamics, increased cross-border activity, and a growing preference for clean exits and reduced escrows. Insurance is no longer a niche product; it is now routinely used across deal sizes and geographies.

Innovation is also accelerating beyond traditional W&I and RWI. Tax insurance and contingent liability products are increasingly deployed to address regulatory uncertainty, unlock trapped capital, and facilitate restructurings and cross-border transactions.

W&I and RWI generally both cover risks which have not been identified during due diligence. Conversely, contingent risk insurance is a tool for identified risks, which would therefore generally not be coverable under W&I/RWI. In that space, it has developed recently from a solution for identified tax risks to now – in principle – for any kind of legal (vs. factual) risk, as long as the probability of materialization is not too high. Underwriting for contingent risks works differently and while W&I/RWI in many cases is almost a commodity, finding the optimal solution for a contingent risk sometimes requires a more targeted approach. However, the range of risks that can be insured is increasing while costs have broadly decreased. Individual tax risks may now be insured for between 1.5-4% of the insured amount in Europe (slightly higher in the US).

As claims experience matures and insurers continue to pay valid claims, confidence in these products continues to deepen.

Key Takeaway for Cross-Border Deals

For cross-border transactions, there is rarely choice between W&I and RWI as it generally follows the SPA. However, in general buyers and sellers increasingly adopt hybrid structures that blend European underwriting discipline with US-style coverage expectations. Navigating these options requires a detailed understanding of disclosure mechanics, underwriting practices, and market trends, making experienced legal and insurance advisors essential to achieving optimal risk allocation and deal certainty.

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