Warranty and Indemnity
Any deal is likely to have certain elements where you’re uncertain or uncomfortable. 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.
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.
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.
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.