The three-hat problem.
When a claim arises, the process depends on openness. The question is whether your broker can afford to be open about work it did itself.
01 At signing: one firm, three hats
On many deals, one brokerage does three jobs. It is a common arrangement, and at signing it is efficient.
Hat 1
Checks the target’s insurance
Writes the insurance diligence report.
Hat 2
Sets up insurance for after closing
Places the go-forward commercial program.
Hat 3
Places the RWI policy
And is meant to be your advocate if you ever make a claim.
02 At claim: everything goes on the table
People who handle RWI claims for carriers, brokers, and policyholders tend to agree on how a claim goes well.
The carrier starts with less information than you.
Claims where the buyer shares everything tend to resolve faster. Claims where information is held back can sit for years.
The record gets read first.
What diligence was done, what was known, and what was disclosed. A common first question is how the issue was not caught in diligence.
Guarded answers slow everything down.
When a party keeps the carrier at arm’s length, the carrier starts asking what is being withheld.
03 The problem: one firm, two sets of instructions
Now suppose the carrier’s questions run through the diligence report or the program placed at closing. If one firm wore all three hats, it is being asked to do two opposite things at once.
What your claim needs from your broker
- Share the whole file.
- Answer questions directly.
- Say plainly if the diligence missed it or the program didn’t respond.
What a professional liability policy typically requires when the insured’s own work is questioned
- Prompt notice to the insurer.
- Cooperation with the insurer’s defense.
- No admission of liability without the insurer’s consent.
Both are reasonable. When a claim turns on the broker’s own work, they pull in different directions.
No bad faith is needed. And a waiver signed at engagement cannot fix it, because the conflict only becomes real at claim, when it is too late to change brokers.
04 The fix: split the hats
Your current broker keeps
- Hat 1 · The diligence
- Hat 2 · The go-forward program
A separate RWI broker takes
Hat 3 · The RWI policy
It has nothing of its own in the file, so it can put everything on the table, including the parts that point to someone else’s work.
The RWI is its own workstream, so very little is duplicated. You also get a second reader on the diligence and the program before the policy binds.
05 Ask before you appoint
- Did you write the insurance diligence report or place the go-forward program on this deal?
- If a claim turns on that work, will you share your whole file with the carrier and with me?
- Who argues my side at that point, and will you put that in writing now?
If your broker answers these well, keep your broker.
Where WolfTRI stands
WolfTRI takes one job: place the policy and hold the carrier to it. There is no file of ours competing with your claim.
WolfTRI does not perform insurance diligence on targets and does not compete for go-forward commercial programs. Keep your broker on that work. When a claim arises, we can be fully open with the carrier and with you, because the only interest we have to protect is yours.
This article is the perspective of its author, offered to start a conversation about how the RWI market can police itself. It describes general market practice in transactional risk insurance and structural considerations in selecting a broker. It is not legal advice, and it is not an opinion on any particular policy, insurer, broker, firm, transaction, or claim. Nothing in it alleges, and nothing in it should be read to suggest, that any person, firm, insurer, broker, or advisor has acted improperly, negligently, or in bad faith, or has done anything wrong. The scenarios described are general and hypothetical; they are not accounts of any actual matter, and any resemblance to a particular transaction or dispute is unintended. The professional liability practices described are general features of how such coverage operates, not a characterization of any firm’s conduct.
WolfTRI recognizes that there can be advantages to working with the same broker across the diligence, the commercial program, and the RWI, including close coordination and specialized contingent risk insurance products, and is happy to coordinate with the broker of your choice should a fact pattern call for a contingent risk product. References to prior roles reflect work at prior organizations, before Wolf Transactional Risk, LLC was founded.
Wolf Transactional Risk, LLC is an insurance brokerage, not a law firm, and does not provide legal services. Although its founder is an Illinois-licensed attorney, nothing here creates an attorney-client relationship or constitutes legal advice, and readers should consult their own counsel and brokers about any transaction. Nothing on this website is an offer to sell, or a solicitation to buy, any insurance product, and no coverage exists until an insurer issues a policy. Coverage under any policy remains subject to underwriting, insurer appetite, policy terms, conditions, exclusions, retention, transaction documents, and the diligence record, and no outcome of any placement or claim is promised. If you believe any statement here is inaccurate, write to info@wolftri.com; it will be reviewed and, where warranted, corrected.