Representations and warranties insurance in AI data center deals

In short

Representations and warranties insurance (RWI) covers a buyer or seller against losses from unknown breaches of the seller’s representations and warranties in an acquisition agreement. In AI data center deals the hybrid real estate, infrastructure, and technology nature brings unique risks. Power grid, water rights, environmental permits, zoning, and AI model data representations can all be sources of claims. RWI premiums in 2025 range from 2.5% to 4% of the policy limit, with retentions around 0.45% to 0.60% of enterprise value. Insurers are beginning to examine AI specific issues more closely, which may lead to exclusions for copyright infringement, data provenance, or model performance. Buyers should run rigorous diligence and expect a thorough underwriting call. SRS Acquiom, Law firm analysis, Tax alert, RWI underwriting call preparation, RWI underwriting call guide

What is representations and warranties insurance and how does it work

RWI is a contract between an insurer and either the buyer or the seller in an acquisition. The insurer agrees to pay for losses the insured suffers because a representation or warranty the seller made about the target company turned out to be false. It first appeared around 1998 and grew out of tax liability policies sold in the London market in the 1980s. Today it is a standard tool in private M&A deals. Griffith, 104 Minn. L. Rev. 1839 (2020)

Buy side policies versus sell side policies

In a buy side policy the buyer is the insured. When the buyer finds a breach it claims directly against the insurer without having to sue the seller. In a sell side policy the seller buys the policy so that the insurer pays the seller’s liability if the buyer sues. Buy side policies dominate the U.S. market. SRS Acquiom

What RWI covers and what it does not

RWI covers unknown and unexpected breaches. It does not cover breaches the buyer knew about before closing. It also does not cover forward looking statements, covenants, purchase price adjustments, or closing conditions. A buyer who is aware of a problem and closes anyway cannot claim on the policy for that known breach. SRS Acquiom

Standard policy terms in 2025

The market has settled on a set of typical terms, though they shift with competition. The table below shows the key numbers buyers see today.

Policy limits above 10% of enterprise value are common for deals under $100 million. For deals around $1 billion, buyers typically insure about 10% of enterprise value. On larger deals, limited total capacity (currently $700 million to $900 million depending on industry) and price fatigue cause insureds to insure below the 10% mark.

The premium is a percentage of the policy limit, not of the deal value. For a $100 million enterprise value deal with a $20 million policy limit, the premium would typically be $500,000 to $800,000. That is about 2.5% to 4.0% of the policy limit as of 2025. Gallagher Transactional Risk 2025 Review, Lockton 2025 Market Update Gallagher’s Transactional Risk 2025 Review shows that average quoted primary R&W rates rose from 2.5% in Q4 2024 to 3.23% in Q4 2025 Gallagher Transactional Risk 2025 Review

Retentions have compressed sharply. A historic 1% of enterprise value is now down to 0.45% to 0.60%. Many policies now include a dropdown feature that lowers the retention to 0.30% to 0.40%. And a nil retention (zero) for fundamental reps like organization and authority is increasingly standard. Lockton 2025 Market Update

Coverage periods follow a 3/6 split. General rep cover lasts three years. Fundamental reps (title to shares, due organization) and tax reps get six years, or the applicable statute of limitations. SRS Acquiom

The no seller indemnity structure

In about 65% of Lockton’s 2024 and 2025 placements the deal used a no seller indemnity (NSI) structure. Under NSI the buyer agrees that its only remedy for breaches of general reps is the RWI policy. The seller does not indemnify the buyer, except for fraud or sometimes a small true deductible. This gives the seller a clean exit. Lockton 2025 Market Update In 2024, 33% of all deals were structured as no survival deals, where the seller’s general reps do not survive closing at all, a practice closely tied to RWI usage. SRS Acquiom 2025 Deal Terms Study

Materiality scrape and the fraud carve out

Most RWI policies contain a materiality scrape. That means the policy reads the seller’s reps without any materiality qualifier. Even a small inaccuracy can be a covered breach. This is buyer friendly.

On the fraud side, insurers usually waive their right to recover from the seller (subrogation) only if the seller did not commit fraud. The definition of fraud is heavily negotiated. Sellers want it limited to actual knowledge of an inaccurate rep made with intent to induce reliance. Boston Bar Association Two Delaware cases, ABRY Partners v. F&W Acquisition LLC and EMSI Acquisition v. Contrarian Funds, demonstrate the importance of carefully drafting fraud carve outs. ABRY shows that a seller cannot shield itself from its own intentional fraud, and EMSI shows that imprecise drafting can expose all sellers to liability even if they lacked knowledge of the fraud. Boston Bar Association

The no claims declaration

At the time the policy is bound, the buyer must sign a declaration stating it has no actual knowledge of any breach. Any breach the buyer knows about is excluded from coverage. This makes the buyer’s pre signing due diligence critical. SRS Acquiom

Why RWI is especially important in AI data center deals

An AI data center is a bundle of real property, heavy electrical infrastructure, water rights, environmental permits, and technology contracts. When a buyer acquires such a business the seller’s reps touch on all of these. If a rep about available power, zoning approval, or water rights is wrong, the loss can run into hundreds of millions. RWI can cover those losses if the breach was unknown. But the complexity also makes insurers ask tougher questions.

Power and energy representations are the single biggest risk

AI data centers consume enormous amounts of electricity. A hyperscale campus can draw hundreds of megawatts. The seller will typically represent the status of its power purchase agreements, interconnection agreements, utility tariff obligations, and the capacity of the existing electrical infrastructure. A misrepresentation here can trigger catastrophic costs.

In November 2025, the Kansas Corporation Commission approved a large load tariff requiring any customer 75 MW or more to pay a minimum monthly charge of 80% of contracted demand, commit to a 12 year minimum term (with up to five years of optional load ramp), give a 36 month termination notice, and pay early termination exit fees. KCC News Release, Docket No. 25-EKME-315-TAR, KCC Order Approving Unanimous Settlement Agreement If the seller had represented that the AI data center had a certain firm power arrangement but that arrangement was subject to a new tariff like this one, the buyer could face huge unexpected bills. An RWI policy would respond if that rep was false when made.

At the federal level, the Federal Energy Regulatory Commission (FERC) rejected a transmission service agreement in 2025 because it could saddle other customers with costs to serve an AI data center. 193 FERC ¶ 61,237 A representation about the finality of an interconnection agreement could therefore be a source of loss.

Environmental and water risks

AI data centers use a lot of water for cooling. In 2023, U.S. AI data centers directly consumed about 66 billion liters of water. Hyperscale centers are projected to consume 60 to 124 billion liters per year by 2028. DOE data as reported by industry analysis Representations about water rights, discharge permits, and environmental compliance are critical. If the seller represented it had secured enough water for its cooling needs, and that turns out false, the buyer may face curtailment or penalties.

Regulatory and permitting hurdles

Building an AI data center requires layers of approvals at the local, state, and federal level. Executive Order 14318, issued July 2025, declared a federal priority to accelerate AI data center permitting. White House Yet local opposition remains strong. Since 2023, over $60 billion worth of AI data center projects were blocked or delayed by community opposition, with Virginia as a focal point. Old Republic Title analysis A seller’s rep that certain zoning or land use approvals were in final form could be wrong. RWI can cover the resulting losses, but insurers heavily diligence these risks.

AI specific representations

In April 2024, the NVCA model forms were updated to include AI specific reps covering model rights, the use of personal or confidential data in AI prompts, and compliance with license terms and laws. Law firm analysis Even an infrastructure company that does not build AI models likely provides space and power to hyperscalers that do. Representations about the target’s contracts with those customers, including data privacy and IP indemnities, can be a source of exposure. A buyer relying on a seller’s rep that all material contracts contain proper data protection clauses could face liability if that rep is false.

How RWI insurers are adapting to AI data center risks

RWI insurers are paying close attention to AI data center deals. They are asking more questions during underwriting and, in some cases, proposing new exclusions. While no standardized AI data center exclusion form exists yet, the market is moving in that direction.

Heightened underwriting scrutiny

For a typical RWI placement the underwriting call includes the insurer’s counsel and often a technical specialist. In an AI data center deal the insurer will focus on the power supply chain. They will want to see the interconnection agreement, the power purchase agreement, the utility’s capacity study, and any pending rate cases. They will examine water rights and environmental studies. And they will ask about the technology. Is the target hosting training runs for large language models? What data do those models use? Does the target or its tenants own the AI output?

Emerging coverage exclusions

Lockton’s 2025 market update notes that some carriers may now apply a broad exclusion around copyright infringement when the target uses proprietary AI models trained on publicly available data. Lockton 2025 Market Update Broader exclusions for data provenance or model performance have also been discussed, though no standardized endorsement has appeared as of mid-2026.

The buyer must also be aware that known environmental or regulatory noncompliance will be excluded. If the buyer fails to maintain required permits or violates environmental law after closing, that loss is not covered. The no claims declaration puts the onus on the buyer’s diligence team to catch issues before closing.

Fraud definitions and the no claims declaration in AI deals

In complex AI data center deals, the definition of seller fraud is critical. A seller may claim it had no actual knowledge that a particular water permit was incomplete, even though a thorough diligence could have flagged it. Sellers should consider limiting the fraud definition to actual knowledge, as undefined fraud can include recklessness. The Delaware courts have held that vague fraud carve outs can expose all sellers to liability even if they were not involved in the fraud. Boston Bar Association

The buyer’s own no claims declaration means the diligence team must be rigorous and candid. If they uncover a potential issue and the buyer still closes, that breach is excluded. The policy will not cover it.

Real deals and what the data shows

The AI data center M&A market is enormous. In 2025 deal volume exceeded $61 billion. CNBC Landmark transactions include Blackstone’s $10 billion take private of QTS in 2021 and its A$24 billion (US$16.1 billion) acquisition of AirTrunk in 2024. QTS / Blackstone, AirTrunk Vantage Data Centers raised $9.2 billion in equity, and CyrusOne closed $9.7 billion in debt capital in 2024. Alantra, Vantage Data Centers

RWI in mega deals

Whether Blackstone used RWI on those specific deals is not publicly confirmed. Given the scale and the prevalence of NSI structures in large private equity transactions, it is plausible that many involved RWI. The market’s stated RWI capacity is $700 to $900 million across all carriers, though for deals above the $1 billion mark a combination of limited total capacity and price fatigue is causing insureds to insure below the 10% of deal value mark. Euclid Transactional 2024 Claims Study

Claim trends

Across all sectors about 20% of RWI policies generate claim notifications. Roughly 4% lead to a payment. One in four paid claims exhausts the full policy limit. Gallagher 2025 Review The most common claim sources are financial statement reps, customer and contract reps, and compliance reps. Together they drive approximately 78% of all RWI loss paid. CBIZ, Euclid 2024 Claims Study In an AI data center deal, contract reps (power purchase agreements, tenant leases) and compliance reps (environmental regulations, permits) are likely to be hot spots.

Euclid Transactional has paid over $1 billion in RWI claims in under nine years, including $300 million in 2024 alone. Euclid Transactional The overall global RWI market was valued at roughly $4.8 billion in 2025 and is projected to reach $11.2 billion by 2034. Three insurers exited in 2024-2025 but the market remained strong and competitive. Lockton 2025 Market Update

Key takeaways

• RWI is a practical tool to cover unknown breaches of seller reps that can otherwise blow up a deal. In AI data center deals it can cover power, environmental, and technology surprises.
• Benchmark standard market terms for 2025. A 3.1% average premium on policy limits of about 10% of enterprise value, retentions at 0.45% to 0.60% enterprise value, and the 3/6 split. Compare any offer against these norms.
• The no seller indemnity structure is now dominant. Using RWI plus NSI can give the seller a clean exit and reduce post closing disputes, but the buyer must rely solely on the policy.
• Expect a more intense underwriting process. Prepare a detailed diligence package that covers power purchase agreements, water rights, and AI related contracts early. The insurer will want to see it.
• Watch for AI specific exclusions. Ask the broker to survey the market for any exclusions related to copyright, data provenance, or model performance. If they appear, negotiate scope or accept the risk openly.
• Define the fraud carve out with care. Sellers may push for an actual knowledge standard. Buyers should consider whether recklessness or a broader standard better protects them.
• The no claims declaration is the buyer’s own responsibility. The due diligence team must be rigorous and honest. Any known breach must be resolved before closing or it will be excluded from coverage.
• RWI claim frequency is moderate but severity can be high. One in four paid claims hits the full limit. The power and environmental reps in a data center deal could easily lead to a full limit claim.

Frequently asked questions

Q:What does representations and warranties insurance cover?

A:RWI covers losses from unknown breaches of the seller’s representations and warranties in the purchase agreement. It does not cover known breaches, forward looking statements, or covenants. SRS Acquiom

Q:How much does RWI cost in 2025?

A:Premiums run from 2.5% to 4.0% of the policy limit, with an average around 3.1%. For a $100 million deal with a $20 million limit, the premium would be about $500,000 to $800,000. Initial retentions are typically 0.45% to 0.60% of enterprise value. Lockton 2025 Market Update

Q:What is a no seller indemnity deal?

A:In an NSI deal, the buyer agrees that its only remedy for breaches of general reps is the RWI policy. The seller does not provide indemnification, except in cases of fraud. About 65% of Lockton’s RWI placements used this structure in 2024-2025. Lockton 2025 Market Update

Q:How long does RWI coverage last?

A:The standard market practice is a 3/6 split. General reps are covered for three years. Fundamental reps (like ownership of shares) and tax reps are covered for six years or the applicable statute of limitations. SRS Acquiom

Q:What special risks does an AI data center deal pose for RWI?

A:AI data centers combine real estate, heavy power infrastructure, water rights, environmental permits, and technology contracts. Misrepresentations about power availability, water rights, or zoning can cause large losses. Insurers may also propose exclusions for AI related issues like copyright infringement. Lockton 2025 Market Update

Q:What is a materiality scrape?

A:A materiality scrape is a provision in the indemnification section of a transaction document (and also appears in RWI policies) that removes materiality qualifiers from the seller’s reps for purposes of determining breach or damages. That way, even a small inaccuracy can support a buyer’s breach claim. This favors the buyer. ABA Business Law Today

Q:Can the insurer sue the seller after paying the buyer?

A:Usually, the insurer waives subrogation against the seller. The main exception is seller fraud. The definition of fraud is heavily negotiated. Boston Bar Association

Q:What is a no claims declaration?

A:Before the RWI policy is bound, the buyer must sign a declaration that it knows of no existing breaches. Any breach the buyer actually knows about is excluded from coverage. This reinforces that RWI coverage is not intended to cover known or expected breaches, and underwriters evaluate the thoroughness of the buyer’s diligence and may exclude areas that were not diligenced sufficiently. SRS Acquiom

Q:How often do RWI claims occur?

A:About 20% of policies get a claim notification, and roughly 4% result in a payment. One in four paid claims reaches the full policy limit. The most common claim categories are financial reps, customer and contracts, and compliance. Gallagher 2025 Review, CBIZ

Q:What should a buyer do to get RWI for an AI data center deal?

A:Start the RWI process early. Engage a broker to get non-binding quotes in several business days. Prepare detailed diligence materials including financial statements and a draft acquisition agreement. Expect the underwriting call to include your deal advisors, and be aware of policy exclusions. SRS Acquiom

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Junde Liu, JD, LL.M. (Taxation) candidate at UF Law. Originally published on Compute Law Blog. This article is general information and does not constitute legal advice. Reading it does not create an attorney client relationship. The reader should not act on the basis of any content here without first consulting a licensed attorney in the relevant state. Last reviewed for accuracy May 23, 2026.