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Representations and warranty insurance claim arbitration

Americas

HKA

Insurance products for representation and warranty claims in post-acquisition disputes are a relatively recent development, and related case law is evolving. When the buyer of an oil and gas contractor claimed for losses due to the seller’s allegedly misleading financial statements, the insurance provider opted to file for private arbitration rather than pay up or seek a negotiated settlement.

Brief

HKA’s consultant was commissioned by the insurer to review the policyholder’s multi-million-dollar claim and, when this was found not to be valid, to prepare its case for arbitration and act as expert witness, if required.

What we did

To inform our examination of the accounting and financial information, HKA’s expert analyzed the terms of the insurance policy and purchase agreement, in light both of his extensive legal expertise and forensic accounting experience of post-acquisition disputes. Evaluation of the claimant’s submission required the discovery and analysis of all supporting information along with interviews of accounting and operational staff, as well as the previous and current auditors of the oil and gas contractor.

HKA dissected the representations and warranties claim from an accounting perspective, bearing in mind the appropriate conventions. The buyer’s submission relied on an alleged violation of generally agreed-upon accounting principles (GAAP). On these grounds, the buyer re-stated the unaudited financial statements, raising questions in turn whether an auditor would be expected to do so under government accounting, auditing, and financial reporting (GAAFR) rules. The buyer’s accountants also availed of ‘purchase accounting’ to write down the value of billings at the point of acquisition and extended this retrospectively.

Outcomes

Our analysis showed that there was no evidence for the alleged violation of accounting standards, and our report rebutted the buyer’s entitlement to claim adjustments based on purchase accounting after the acquisition.

The HKA consultant’s combination of forensic accounting and expert witness expertise ensures our client can rely on a seamless and robust defense of its decision to reject the claim at an arbitration hearing.

Project Details
  • Client
    Confidential
  • Value
    Confidential
  • Services
    Expert
  • Sectors
    Forensic Accounting & Commercial Damages

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