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44 J U N E 2 0 1 7 w w w . C A N A D I A N L a w y e r m a g . c o m Canada] for a long time, but it was too expensive and cumbersome to use." It finally made inroads to Canada two to three years ago, says Stauder, via Europe, and was first introduced in mid-market deals by funds that wanted to distinguish themselves in auction settings. "In the last few years, there hasn't been a high-level deal that didn't include representation and warranty insurance," he says. "In the last couple of years, it's ubiquitous. We have used it in many iterations, and what we're overseeing right now is the . . . sub-trend toward making it as seller-favourable as possible." It used to be that even when it was used in Canada, the parties agreed that the seller would maintain some exposure, Stauder adds, but there are now more deals in which the buy- ers are willing to release the sellers from indemnity, and rely solely on representation and warranty insurance. "It's a more sell-friendly trend." Prices have also come down on representation and war- ranty insurance, Geraghty notes, coincident with its increased use. Almost no mid-market deal is done in the U.S. now with- out this insurance, she says. "That could soon be Canada." Mark Adkins, an M&A practitioner and co-leader of Blake Cassels & Graydon LLP's private equity group in New York, also confirms that most deals in the U.S. and U.K. now carry representation and warranty insurance, including the private equity deals. However, although R&W insurance is expand- ing in Canada, it is not as common in Canada as in the U.S. because it is a product designed for a financial seller, and there are fewer of those in Canada, as well as less litigation, lowering the post-closing risk. (Indeed, says Litwack, in his 40 years of practice, he "can count on one finger the number of claims" he has seen for breaches of representations and warranties.) Nor is it a perfect solution, says Adkins, as there are often topics that are excluded from the policy's coverage, such as tax and environmental items. What does get covered is negotiated between buyer and seller, and then with the insurer. Sandbagging Sandbagging occurs when a buyer learns there is a breach of representation prior to finalizing a deal, then goes after the seller for the breach afterwards; in figurative terms, the buyer sandbags the seller. For many years, there was silence on the issue of sandbag- ging in Canadian deals, says Litwack, meaning that it wasn't mentioned in deals agreements. He says most agreements he sees are still silent. Americans "came up with the idea of pro-sandbagging," IN THE LAST FEW YEARS, THERE HASN'T BEEN A HIGH-LEVEL DEAL THAT DIDN'T INCLUDE REPRESENTATION AND WARRANTY INSURANCE. STEFAN STAUDER, Torys LLP L E G A L R E P O RT \ M E R G E R S A N D A C Q U I S I T I O N S When you are looking for specialized legal counsel, turn to the resource that showcases peer-ranked Canadian legal talent. lexpert.ca/directory 2017 LAWYER ntitled-1 1 2017-05-18 8:11 AM

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