QUICK ANSWER
What does warranty and indemnity insurance do?
Warranty and indemnity insurance can protect a buyer or seller against defined financial loss arising from breaches of insured warranties or certain indemnities in an M&A transaction. The actual protection depends on the SPA, disclosure, due diligence, policy wording, known matters, exclusions, retention and policy limit.
AT A GLANCE
How the cover works
Warranty and indemnity insurance can protect a buyer or seller against defined financial loss arising from a breach of insured warranties or certain indemnities in an M&A transaction.
Buy-side policies are common because they can provide the buyer with direct recourse to the insurer, while helping sellers reduce retained liability. The exact protection follows the transaction documents, policy wording, due-diligence process and negotiated exclusions.
W&I COVER
What may be covered
- Financial loss arising from a breach of insured warranties in the SPA.
- Specified tax indemnity exposure where included within the policy.
- Defence and claim costs where the wording provides them.
- Buyer-side or seller-side structures according to the transaction and policy design.
The insured warranties, retention, policy limit, exclusions, definitions and claims conditions determine the actual protection.
BOUNDARIES
Common exclusions and limitations
- Matters known to the insured or fairly disclosed during the transaction process.
- Issues expressly excluded following due diligence or underwriting.
- Forward-looking warranties, purchase-price adjustments, leakage or other matters outside the insured warranty framework.
- Specific tax, environmental, title, contingent-liability or other known risks unless separately insured or expressly brought within cover.
This is not a complete list. The SPA, disclosure materials, policy schedule and full wording determine the protection.
CLAIMS IN PRACTICE
How a claim might arise
01. After completion, the buyer discovers an undisclosed liability that is alleged to breach an insured warranty.
02. A tax issue relating to a pre-completion period gives rise to a claim under an insured tax indemnity.
03. The insured notifies the insurer of an alleged breach and quantifies the financial loss according to the policy and transaction documents.
These examples are illustrative only and do not confirm that a particular claim would be covered.
QUESTIONS
Frequently asked questions
What does W&I insurance cover?
It can cover defined financial loss arising from breaches of insured warranties and certain indemnities in an M&A transaction, subject to the policy wording.
Why are known issues often excluded?
W&I insurance is generally designed around unknown breaches. Known issues identified through disclosure or due diligence may require a specific indemnity or another specialist insurance solution.
Why does due diligence affect W&I cover?
The insurer uses the diligence process to understand how the insured investigated the warranty areas and where material gaps or identified risks remain.
For transaction preparation, see the DIBNI Warranty & Indemnity Transaction Guide.