Texas Bar Journal • October 2026

Don’t Lose the Deal

An examination of insurance and alternative risk transfer mechanisms in transactional practice.

Written by David Taubenfeld and Natalie DuBose

Among the most consequential errors a transactional attorney can commit is the premature abandonment of a prospective transaction due to the perception of unmitigable risk. In practice, the breadth and sophistication of insurance products, near-insurance instruments, and alternative risk transfer mechanisms have expanded to such a degree that virtually no risk—however novel or complex— should be deemed uninsurable without thorough investigation. The imperative for practitioners is clear: before advising a client to withdraw from a transaction on account of risk exposure, counsel should consider all available avenues for transferring, mitigating, or quantifying that risk through the insurance marketplace.

The past decade and a half has witnessed a remarkable transformation in the transactional insurance landscape. What was once a narrow and specialized corner of the insurance market has matured into a robust ecosystem of products designed to address nearly every conceivable risk that may arise in the context of mergers and acquisitions, corporate reorganizations, investment transactions, divestitures, and complex commercial dealings. Transactional attorneys who remain unfamiliar with these instruments do a disservice to their clients and risk losing transactions that could otherwise proceed to a successful closing.

Perhaps the most significant development in transactional insurance over the past 15 years has been the proliferation and standardization of representations and warranty insurance (RWI) policies—known in jurisdictions outside the U.S. as warranty and indemnity (W&I) insurance. These policies indemnify the insured party against financial losses arising from breaches of the representations and warranties made by the seller in the operative transaction documents. RWI has fundamentally altered the mechanics of deal structuring by substantially reducing or eliminating the need for purchasers to escrow significant portions of the acquisition price as security against post-closing indemnification claims.

The market for RWI has grown dramatically. More than 30 insurers now actively underwrite these policies, and all major insurance brokerage firms maintain dedicated transactional risk practices staffed by professionals who specialize in the placement and negotiation of RWI coverage. The competitive marketplace has driven down premiums, broadened coverage terms, and accelerated the underwriting timeline—making RWI an increasingly cost-effective and efficient tool for dealmakers.

A distinctive feature of RWI underwriting is the insurer’s obligation to conduct its own independent assessment of the transaction. Unlike traditional insurance products where the insurer relies primarily on the insured’s representations regarding the risk, RWI insurers engage in a substantive due diligence process that parallels the buyer’s own investigation. Insureds pay an underwriting fee separate and apart from the policy premium to compensate the insurer for this diligence effort. Insurers typically retain well-regarded law firms to review and “piggyback” upon the buyer’s existing due diligence materials, including data room contents, diligence reports, and the transaction documents themselves. Over time, this process has become considerably more efficient, with experienced underwriters capable of completing their review within compressed timeframes that accommodate the demands of competitive auction processes and expedited closings.

Beyond traditional RWI, the transactional insurance market has expanded significantly into the domain of tax risk. Tax liability insurance policies—sometimes referred to as tax transactional policies or tax opinion insurance—protect buyers, sellers, or investors against specific, identified tax liabilities arising within or outside the context of a merger or acquisition. The utility of these products cannot be overstated for practitioners navigating transactions with material tax uncertainty.

Tax transactional policies may be deployed in a variety of circumstances. They can insure against the risk that a transaction structured to qualify for tax-free treatment under applicable provisions of the Internal Revenue Code will subsequently be recharacterized as taxable by the Internal Revenue Service. They may protect against the financial exposure associated with historical tax positions that remain subject to audit or challenge. Additionally, these policies can provide coverage against the potential invalidation of valuable tax attributes—such as tax credits, net operating losses, or other carryforward items—following a change of control or other transaction that could trigger limitation or disallowance under applicable tax rules. For transactions where the economic viability of the deal depends upon the preservation of specific tax benefits, tax transactional insurance provides a mechanism to allocate and transfer that risk to a third-party insurer.

A third category of transactional insurance that merits particular attention from practitioners is the contingent risk policy. These instruments address known risks—that is, risks of which the parties are already aware at the time of underwriting—where the financial consequences of the risk materializing remain uncertain in both probability and magnitude. Unlike RWI, which addresses unknown breaches of representations, contingent risk insurance deals with identified exposures whose ultimate resolution depends upon future contingencies that cannot be predicted with precision at the time of the transaction.

The applications of contingent risk insurance are remarkably diverse. As Peter de Boisblanc, of transactional broker HWF Partners, has observed, these policies may be structured to address a wide array of transactional impediments. A contingent risk policy may cap the exposure associated with pending litigation, including judgments that are subject to appellate review, thereby providing certainty to a buyer who would otherwise face unlimited downside from an adverse appellate outcome. Such policies may quantify and transfer legacy liabilities—such as asbestos-related claims or environmental remediation obligations—that would otherwise render a target company unattractive to potential acquirors.

Further, contingent risk insurance may be employed to insure or control exposure arising from product warranty claims, to backstop the anticipated recovery from a portfolio of patents currently in litigation, or to provide a hedge against the risk that former employees will assert that employment agreements or equity incentive arrangements entitle them to shares or other compensation triggered by the transaction. These policies may also address the risk that a party possessing an arguable contractual right of first refusal will elect to exercise that right, potentially disrupting or unwinding the contemplated transaction. Similarly, contingent risk coverage may protect against the possibility that a target company’s non-compliance with regulatory permitting requirements will result in suspension of operations following the closing—a risk that could materially impair the value of the acquired business.

The practical significance of contingent risk insurance becomes most apparent in circumstances where the RWI insurer has excluded specific identified risks from coverage and the seller is unwilling to provide a contractual indemnification obligation with respect to those same risks. In such situations, the buyer faces a binary choice: either accept the unmitigated risk exposure or abandon the transaction entirely. Contingent risk insurance provides a third alternative—one that can literally save the transaction by providing the buyer with financial protection against the excluded risk at a quantifiable cost. The ability to bridge this gap between what RWI covers, what the seller will indemnify, and what the buyer requires to proceed represents one of the most valuable functions of the contingent risk insurance market.

In light of these developments, the conclusion for transactional practitioners is straightforward and compelling: the risk of losing a deal is always greater than the risk of investing the time and modest expense required to explore whether an insurance solution exists. The transactional insurance market has matured to the point where creative underwriters can fashion policies to address risks that would have been deemed uninsurable a generation ago. Practitioners are well advised to cultivate relationships with experienced transactional insurance counsel and specialized brokers who possess the market knowledge and carrier relationships necessary to identify and place appropriate coverage.

The failure to explore insurance solutions before counseling a client to abandon a transaction represents, at best, a missed opportunity and, at worst, a failure of the attorney’s obligation to provide informed and comprehensive advice. In an era where the transactional insurance market offers solutions of unprecedented breadth and creativity, no deal should be lost without first determining whether the risk that threatens it can be transferred to an insurer willing and able to bear it.

DAVID TAUBENFELD is a partner in the Insurance Recovery Group and the Mergers and Acquisitions groups at Haynes and Boone. He has negotiated, implemented, and handled claims with respect to all manner of transactional insurance products for more than a decade.

NATALIE DUBOSE is an insurance litigator and advocate with broad experience across many lines of coverage, including transactional risk. She is a partner in the Insurance Recovery Group and the Mergers and Acquisitions groups at Haynes and Boone.