Warranty and Indemnity
A W&I policy protects against the risk of a breach of warranty and indemnity in a share or asset sale agreement. The purpose of the product is to transfer the risk of financial loss associated with a claim for a breach of an insured warranty or indemnity from the seller to the Insurer.
Buyers are insured against loss arising from a breach of warranty and can claim directly against the Insurer under the policy without having to pursue the Seller. Once the retention has been exceeded by claims that exceed the de minimus, the Buyer, being a party to the insurance policy, can claim directly against the W&I policy for the loss they have suffered up to the policy limit. Such loss would also include any related defence costs.
Why W&I Insurance?
W&I insurance is viewed as a tool to facilitate a clean exit and provide greater certainty of the extent of any liability exposure associated with the transaction.
Management Rolling Over
Buyers can protect their relationship with the Seller who may become the Buyer’s key employee or commercial business partner after the transaction, by having the ability to claim directly under the W&I Insurance policy rather than pursuing the Seller.
W&I insurance may provide a Buyer with confidence in its ability to recover for a breach of warranty or indemnity (as the insurer’s balance sheet will effectively replace any perceived credit risk associated with the seller). This may remove the need for an escrow or deferral of purchase price.
A Buyer entering a new jurisdiction may want certainty about its ability to recover for breach of warranty or indemnity under the transaction documents. Equally a Seller exiting a jurisdiction may want certainty about its liability exposure in that jurisdiction.
The existence of W&I insurance may provide a prospective financier of the Buyer with the comfort it requires to provide the debt component of a purchase price.
Please contact one of our experts to find out more:
P: 61 2 9346 8050
P: 61 3 8610 8100
P: 61 7 3833 8699