Hunton Insurance Recovery Blog

Novolex Holdings, LLC v. Illinois Union Insurance Company is one of the few cases involving a claim under a Representation and Warranties (“R&W”) policy playing out in a public forum because most R&W cases are resolved before a formal dispute and often don’t reach litigation. In addition, most R&W policies provide the policyholder with the option to have the dispute resolved through arbitration, which many clients may prefer so as to avoid the public scrutiny of a court case. Novolex, however, is one of the few cases that has proceeded to litigation.

A software company—Zywave, Inc. (“Zywave”)—recently filed a lawsuit in California federal court that may provide rare insight into how courts will resolve representations and warranties (“R&W”) insurance coverage disputes. Zywave purchased a buyer-side R&W policy in connection with its acquisition of an insurance product-distribution software company. Zywave alleged that, post-close, it learned that the seller had knowledge of “serious material performance issues with certain customers that it failed to disclose,” amounting to breaches of various sections of the acquisition agreement. The software company further alleged that if the seller had disclosed the performance issues, the software company would have either walked away from the transaction or paid a lower purchase price.

Representations and warranties coverage disputes are far more often resolved through informal or confidential proceedings rather than litigation. Law 360 recently published an article by Hunton insurance counsel Syed Ahmad, Patrick McDermott, and Jae Lynn Huckaba analyzing a rare representations and warranties dispute in the summary judgment stage of litigation between pH Beauty Holdings III Inc. and its representation and warranties insurers. As summarized below, the authors provide an overview of the issues in dispute, which related to the RWI retention, an exclusion related to the purchase price adjustment following closing, and pH Beauty’s bad faith claim.

The explosive growth of representations and warranties (R&W) insurance over the last decade is no secret.  But, for many, R&W insurance remains an enigma, particularly as respects filing a claim under such policies.  Indeed, even those involved in buying R&W insurance may not have experience on the claims end and, as a result, possess little knowledge on how to navigate the assortment of issues that may arise.  Of course, policyholders pursuing a claim under an R&W policy should be aware of the minefield of issues that await in establishing the two primary thresholds to recovery: breach ...