How it works in a data room
Before issuing a policy, the insurer’s underwriters review the diligence reports and often request access to the data room itself. They want to see that the buyer has investigated the risks being insured. Underwriters typically get view-only rights in their own user group, study the reports from financial, tax and legal advisers, and ask questions on an underwriting call. Matters the buyer already knows about, or that diligence did not cover, are usually excluded. In the US, the product is more often called representations and warranties insurance.
Why it matters in a deal
The policy lets sellers, especially private equity funds, exit with a clean break and limited liability, while buyers gain a solvent counterparty for claims. It can make a bid more attractive in an auction. Underwriters rely heavily on quality diligence, so sellers commonly commission vendor due diligence to support the process. Policy terms, retentions and exclusions vary by market and deal; this is general information only.
Example
A private equity fund selling a dental practice group in Australia offers bidders a capped seller liability and suggests they take out insurance. The winning buyer’s broker brings in an insurer, which reviews the room and reports for a week and issues a policy covering warranty breaches up to an agreed limit. When a payroll tax issue surfaces later, the buyer claims under the policy. See our Australia guide for local context.