Warranty and indemnity (W&I) insurance in M&A transactions
Produced in partnership with Mary Duffy of AIG
Warranty and indemnity (W&I) insurance in M&A transactions

The following Corporate practice note produced in partnership with Mary Duffy of AIG provides comprehensive and up to date legal information covering:

  • Warranty and indemnity (W&I) insurance in M&A transactions
  • Strategic benefits of W&I policies
  • Buyer benefits
  • Seller benefits
  • Differences between buyer-side and seller-side W&I policies
  • Key terms and conditions of the W&I insurance policy
  • Policy period
  • Policy excess and de minimis
  • Exclusions
  • Key definitions in the W&I insurance policy
  • More...

Warranty and indemnity (W&I) insurance may be used in private company sale and purchase transactions (whether structured as a share purchase or asset purchase). W&I insurance may be taken out by either the buyer or seller so as to cover losses arising from breaches of the seller’s warranties and indemnities set out in the share purchase agreement or asset purchase agreement, as appropriate (acquisition agreement) (including tax indemnities in the tax covenant, where entered into).

While W&I insurance is predominantly used in private company M&A transactions, it can occasionally also be used in public company M&A transactions if any warranties are provided by the target company/shareholders.

In addition to using W&I insurance to manage the risks inherent in the transaction, buyers and sellers often use the insurance strategically, for instance enabling a bidder in a competitive auction to differentiate its bid or allowing sellers to minimise the amount of sale proceeds held in escrow and thereby realise the sale proceeds more quickly.

It is becoming increasingly common in the UK and other jurisdictions for transactional lawyers and clients to use W&I insurance to manage the risk in a sale or acquisition. Lawyers advising clients who are considering using W&I insurance on a transaction will need to be aware of the benefits and pitfalls of the coverage, with the goal of obtaining cover as 'back-to-back' with the acquisition

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