Warranty & Indemnity

What does W&I insurance cover?

Warranties and Indemnity (W&I) insurance is a powerful tool to streamline negotiations between the parties, offering financial protection for unknown risks that lead to warranty breaches. 

W&I can allow the seller to limit its liability to a low level, while also giving the buyers their desired protection. It covers breaching warranties or a claim under the tax covenant set out in the underlying acquisition agreement. 

The seller will often introduce insurance to the deal but, in 9 out of 10 deals, the buyer is the policyholder. A buyer-side policy affords the buyer more control and comfort; they can claim directly from the insurer, with no need to involve the seller. The insurer will waive subrogation rights against the seller (barring seller fraud, of course).

W&I can also be used in place of escrow funds so that proceeds are distributed to investors immediately rather than tied up.

How does W&I insurance work?

Every deal is different, so the insurance contracts must be bespoke; tailored to match the deal covenants precisely. We handcraft solutions to help you get your deals over the line, without the sleepless nights.

The W&I specialists who make up our team have backgrounds in corporate and tax law, investment banking and insurance. 

Premiums
Typically 0.75-1.3% of the policy limit for real estate transactions and 1-2% for operational businesses - depends on factors including the jurisdiction of the acquisition agreement, nature, and location of the target's operations and policy parameters. 

Timeframe
We can go from an initial discussion to having a tailor-made policy in place for you within 17 days. 

Policy periods typically match or, in the case of a buyer-side policy, extend the time limitations set out in the acquisition agreement. The policy period is generally 18-36 months for general warranties and seven years for title, capacity and tax.

Key exclusions in W&I policies

The following are not covered under the terms of a standard W&I.

• Known, identified risks 
• Transfer pricing
• Secondary tax liabilities 
• Pensions underfunding 

If you would like to discuss scenarios that include the above, please get in touch and speak to a specialist.