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Managers’ Liability in a Transaction

October 11, 2023

Does my D&O policy cover me for non-compliance with the R&Ws granted in an M&A deal?
Financial, Executive and Professional Risks (FINEX)|Mergers and Acquisitions

Over recent years there has been a notable increase in the use of “transactional risk” insurance solutions in the context of private M&A transactions, the most common of these being “Representations and Warranties” (“R&W”) insurance; WTW as advised on more than 3,000 policies in the last two years alone. The use of this mechanism for limiting liability under sale and purchase agreements often gives rise to additional, broader commercial considerations, including how R&W insurance interacts with other insurances; this is a topic which we will consider further, below.

It used to be typical for the R&Ws included in a sale and purchase agreement to be granted by the seller(s) and the buyer only. However, these days it is increasingly common for the management team of the target company to be required to stand behind the “business R&Ws”, either in the sale and purchase agreement itself or in specific ancillary contracts commonly referred to as “Warranty Management Deeds”.

It is in such situations that managers often question the extent of their personal liability when granting R&Ws as part of an M&A transaction and indeed, whether any existing “Director & Officer” (“D&O”) insurance policy would afford them protection.

It should be noted that R&Ws insurance provides cover for quite a different set of circumstances than those covered by D&O insurance.

A R&Ws insurance policy provides cover in the event there is a breach of a representation or a warranty given by the managers of the target company. Pursuant to the terms of the policy, an insured buyer can make a claim against the insurance and recover the loss it has suffered directly from the insurance company without the need to pursue the warranting managers. It is a one-off, non-renewable, “claims made” insurance policy, i.e. it provides cover as long as the policy is in effect at the time of notice of claim being made. Most policies have a duration of up to 7 years (for tax and fundamental R&W claims and typically 3 years for business R&W claims) from completion of the underlying transaction.

Additionally, it is common for managers to limit their liability under the sale and purchase agreement to the greatest extent possible and they often cap their liability for any breach of representation or warranty at 1 Euro. In practice, this means that all claims for breaches of the R&Ws have to be made against the insurer if any meaningful recourse is to be obtained. However, it is important to note that in the event of the managers’ fraud, the insurance company (who will bear the burden of proof), may seek retrospective recourse against the fraudulent managers.

In contrast, D&O insurance provides cover for any civil liability that a company’s directors might incur for errors or omissions in management. Whilst a D&O insurance policy is also a “claims made” insurance policy, it is an annual, renewable policy. Additionally, the “insured” is the management team of the company, rather than the purchaser of the target company (or in some circumstances, the sellers of the target company). Therefore, if the D&O policy is to respond, any claims must be made against the managers themselves.

D&O insurance policies do not contain a specific exclusion in respect of non-compliance with R&Ws but these are not intended to be covered by such a policy. A D&O policy will exclude the insured party’s willful misconduct, but it will advance defense costs, which is of the utmost importance to ensure the best protection during legal proceedings.


Each type of policy affords a different range of protections designed to provide cover in different scenarios. That said, these two insurances are complementary in that they provide a full suite of protections for the responsibilities assumed by each of the seller, the buyer and their respective management teams. To ensure maximum coverage, each type of insurance must be tailored to the specific scenarios, jurisdictions and sectors in which the companies and underlying management operate.

D&O Policy Change of Control Clauses

In addition to the above and specifically in the context of an M&A transaction, there is a critical provision included in nearly all D&O insurance policies that must be taken into account.

In the event that a third party acquires more than half of the share capital of a target company (and notwithstanding that a D&O insurance policy benefits a company’s management team rather than the company itself), any “change of control clause” will be triggered, resulting in the D&O insurance policy ceasing to offer “go-forward” coverage in respect of all actions of the management team after the date of the transaction.

The triggering of a change of control clause can also cause another significant issue as, subject to the language of the original D&O insurance policy, liability in respect of historic actions prior to the date of the transaction giving rise to the change of control may not necessarily remain insured.

Pursuant to the Capital Companies Act, “the right of action against a director, whether social or individual, shall expire four years following the day on which the right of action first arose.”


Fortunately there is a solution for management teams who are otherwise exposed in these scenarios; this is known as a “Run Off” to the D&O insurance policy. “Run Off” allows the management team of the company to continue to have the level of protection they had before the transaction for the agreed “Run Off” contract period.

As part of the broader commercial and transactional matters that a buyer considers during the course of an M&A transaction, we recommend that a buyer also considers the following with respect to D&O insurance policies:

  • Negotiate the “Run Off” before completion of the acquisition occurs.
  • Pre agree the additional period so that it can be activated in an effective and timely manner.
  • The additional “Run Off” notification period is normally contracted for six years with a minimum recommended period of 48 months.

WTW FINEX has a large team of professionals with extensive R&Ws and D&O insurance experience. We are available to answer any questions and help clients structure the risks associated with M&A transactions.


Head of M&A Mediterranean Region
FINEX Global

Director l D&O and Reputational Risk I FINEX


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