Warranty & Indemnity insurance
Financial protection for unknown risks
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.
Who is W&I insurance for?
The buyer or seller. 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.
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.
Key exclusions in W&I policy
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.
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.
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.