How Insurance Let Three Siblings Sell Without Trusting Each Other

The situation

Fiona, Angela, and Carlos inherited equal-ish shares in a precision parts manufacturer their parents had built over three decades in Ottawa. Fiona had stepped into a governance role on the board after their father's death, staying close to the company's finances and operations. Angela and Carlos had not. Angela worked as a bookkeeper for an unrelated employer, and Carlos worked as an administrative assistant. Both had day jobs that had nothing to do with running a manufacturing business, and both trusted Fiona and the company's long-time management team to keep things on track. They collected occasional dividends and mostly stayed out of the way.

When a strategic buyer offered to acquire the company outright for a purchase price in the neighbourhood of $11 million, all three siblings were ready to sell. The business had grown past the point where any of them wanted to keep managing family ownership of an operating company, and a clean exit appealed to everyone. The buyer's lawyers sent over a draft purchase agreement, and Treadstone Law was retained to represent the three sellers together.

The trust gap

Every share purchase agreement of this size includes a set of representations and warranties — promises the sellers make about the state of the business: that its financial statements are accurate, that there is no undisclosed litigation, that it holds the licences and permits it needs, that it complies with environmental and employment law, and dozens of similar statements. If any of those promises turns out to be false after closing, the buyer can bring a claim against the sellers for the resulting loss.

The standard way buyers protect themselves against that risk is a holdback, or escrow: a portion of the purchase price, often around ten percent, is held back for twelve to eighteen months after closing so there is a pool of money available if a warranty turns out to be broken. On this deal, a ten percent holdback would have meant roughly $1.1 million tied up and shared proportionately among Fiona, Angela, and Carlos according to their ownership.

That structure created a specific problem for Angela and Carlos. The representations being made about the business — its environmental compliance, its supplier contracts, its tax filings, its employment practices — were things Fiona and the management team had far more visibility into than they did. If something in those representations turned out to be wrong because of a decision made inside the company that Angela and Carlos had never been told about, they would still be on the hook for their share of any claim, out of pocket, from personal savings built on administrative-assistant and bookkeeper incomes. Fiona, for her part, did not want to indemnify her siblings' shortfall if the holdback ran short, and did not want a lingering financial relationship with her siblings for eighteen months after the sale closed. None of the three wanted to be the one relying on the other two's disclosures being complete. The deal risked stalling not over price, but over who would bear the risk of what none of them could fully verify.

What we did

1. Proposed a reps and warranties insurance policy in place of a large holdback. Reps and warranties insurance, sometimes called RWI, is a policy purchased in connection with a business sale that pays out if the seller's representations turn out to be false, shifting that risk from the sellers to an insurer rather than leaving it sitting with the family. We explained that instead of $1.1 million of the purchase price sitting in escrow and exposed to sibling-versus-sibling disputes, the sellers could buy a policy with its own coverage limit and let the insurer stand behind the warranties.
2. Brought in an insurance broker experienced in mid-market transactions. RWI is placed through specialist brokers who solicit quotes from insurers, and pricing and terms vary enough between insurers that a broker's market access mattered on a deal this size. We coordinated the broker's work with the transaction timeline so the policy could be underwritten in parallel with the purchase agreement negotiations rather than after them.
3. Negotiated the buyer's cooperation. RWI only works if the buyer agrees to rely on the policy instead of insisting on a full holdback from the sellers directly. We negotiated a reduced seller indemnity — a modest holdback covering only the portion of loss below the policy's retention, the amount of initial loss the sellers absorb before coverage responds — with the insurer standing behind everything above that.
4. Went through the insurer's underwriting due diligence. Before quoting a final premium, the insurer's own counsel and technical advisors reviewed the company's financial records, contracts, corporate filings, and compliance history, layered on top of the buyer's own due diligence. This is where the process paid off in a way none of the siblings expected.
5. Flagged an unresolved environmental item before it became a warranty problem. The insurer's environmental review turned up an old underground fuel storage tank on the company's industrial property that had been decommissioned years earlier but never formally closed out with the required regulatory sign-off. Fiona had not known about it; the company's original facilities manager, long since retired, had handled it informally at the time. Left undisclosed, it would have made the environmental compliance representation in the purchase agreement false the moment it was signed — a breach sitting dormant, waiting to surface as a claim months or years after closing, with no one certain who among the three siblings should bear it.
6. Arranged proper closure of the issue and updated the disclosure schedule. We worked with the company to retain an environmental consultant, complete the formal closure and regulatory sign-off on the tank, and add a specific disclosure to the purchase agreement's disclosure schedule describing what had been found and resolved. Once a matter is properly disclosed, it stops being a hidden warranty breach and becomes a known, priced fact the buyer and insurer can account for.
7. Finalized the policy and closed the transaction. With the environmental item resolved and disclosed, the insurer confirmed final terms: a policy with a coverage limit of roughly $2 million, a premium of about $65,000 paid at closing, and a seller retention far smaller than the holdback originally proposed. The sale closed with all three siblings signing the same representations, backed by the same policy, with no long tail of mutual financial exposure between them.

The outcome

The sale closed on schedule. Rather than $1.1 million sitting in escrow for eighteen months with Fiona, Angela, and Carlos each exposed to the other two's conduct, the sellers' collective exposure was limited to a small retention, with the insurer standing behind claims above it. Angela and Carlos, in particular, were able to sign the deal and walk away without carrying ongoing financial risk tied to decisions made inside a business they had never operated.

The more important result was the one that never became a claim. Had the underground tank issue surfaced after closing instead of during underwriting, it would likely have triggered a warranty claim against the sellers directly — precisely the scenario the family had been trying to avoid, and precisely the kind of problem none of them would have known to look for on their own. Because the insurer's due diligence process is more exacting than a typical buyer's, it caught the gap while there was still time to fix it cleanly rather than argue about it later. The siblings paid to close it out properly, disclosed it, and moved on. No claim was ever made against the policy, which is the outcome RWI is designed to make possible: a sale where a real problem gets caught and resolved before it has the chance to become a dispute at all.

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