Warranty & Indemnity Insurance
Warranty & Indemnity Insurance
Known as ‘Warranty & Indemnity Insurance’ (or W&I) in the UK, but otherwise referred to as ‘transaction liability’, ‘mergers and acquisitions liability’ and even ‘Representations and Warranties’ (or W&I) in the US, this insurance cover facilitates the sellers and purchasers in commercial M&A (share-purchase) transactions.
Rowlands & Hames’ preferred insurer is CFC, the MGA utilising Lloyd’s of London capacity, which has expertise in W&I insurance.
Under the terms of a typical M&A deal, sellers carry the risk for any liabilities which occurred while they owned the company. If these issues are discovered after the transaction completes and cause financial loss, the seller is often financially responsible.
This risk can be reduced by taking out a W&I insurance policy – Available to both buyers and sellers, W&I insurance is designed to reimburse the buyer for any financial loss suffered as a result of any inaccuracies in the representations and/or warranties given by the seller and to free up sale proceeds for the seller.
By transferring this risk to the insurer, W&I insurance can be used to:
- Enhance potential buyers’ bids by minimising the level of indemnification provided by the seller to the buyer
- Smooth the transaction process by simplifying the negotiation of the representations and warranties
- Reduce credit risk on the part of the buyer, since the buyer can claim against the insurer rather than any number of sellers
- W&I insurance is designed to reimburse the insured for any financial loss suffered as a result of inaccuracies in the representations and warranties.
Other forms of transaction liability insurance
Tax Indemnity insurance
Tax insurance exists to cover the acquired company, the seller or the buyer against the risk that an identified tax issue materializes and results in loss.
For more information on W&I/Transaction insurance please read CFC’s guide to Transaction Liability:
In the guide, you’ll learn:
- Why does transaction liability insurance exist
Under the terms of a typical M&A deal, sellers carry the risk for any liabilities which occurred while they owned the company. If these issues are discovered after the transaction completes and cause financial loss, the seller is often financially responsible. - What are representations, warranties and indemnities?
Representations and warranties are statements of fact. In an M&A transaction, the seller will represent and warrant certain facts about the company which they are selling. - What happens when a representation or warranty is breached?
When a representation or warranty is proven to be untrue, or breached, the seller will be liable for any losses suffered by the buyer as a result, which sometimes includes the diminished value of the acquired business. - How does a policy work?
Transaction liability insurance steps in to address the reimbursement obligation. In the event a representation or warranty is inaccurate, the insured can make a claim against the policy rather than the other party. - Who should buy representations and warranties insurance?
W&I insurance is generally available for private M&A transactions effected through stock (share) purchases, asset purchases and mergers. - Policies in action: Claims examples
A couple of claims examples involving private equity firms acquiring a manufacturer and a restaurant franchise.
Policy limits and exclusions may apply, please see policy wording for full terms and conditions.
Contact the Team
Mike Watkinson Dip CII
- Corporate Account Manager
- 01253 598973
- mike@rowlands-hames.co.uk
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Testimonials
I have to thank Mike in particular for being at my beck and call through what was an experience I have to say, I do not wish to go through again to this extent. However, on the positive, it has been a learning curve for myself and things could have been a lot worse, not least that I may not have had such a supportive and competent broker. I also doubt that anyone from other brokers would have been on the ball so quickly, never mind within one hour of my call and on a Sunday!.
Recently I broke my glasses and obviously I replaced them. Then I realised that I could possibly claim on my Covea home insurance. I rang Rowlands and Hames and got through to Mike, explained the situation and fully expected to be sent a long and tiresome form to complete. How wrong was I! Mike asked me to take a photo of my broken glasses and of the receipt for my replacements. I duly did this and that was it:I had to do no more and my settlement has since arrived in my bank account. In a world where so much seems complicated, time consuming and off-putting, the service I received from Mike was truly remarkable. Also he is such a pleasant, polite and personable young man.
This is customer service at its finest and Mike is surely a valuable and valued member of your staff.”
May I take this opportunity to thank you and your colleagues for your help with this claim. You made it easier for me and kept me updated along the way.
Keep up the great work guys.”