Warranty & Indemnity Insurance
- Jurisdictions: no restrictions other than in respect of transactions or insureds located in the United States
- Insured: cover available both buy-side and sell-side
- Policy Period: up to a maximum of 7 years
Limit of Liability: up to GBP £46m (or local equivalent)
- Seller Cap: cover available where the seller’s financial exposure is nil or £1
- Excess: nil excess possible for real estate transactions
- Brexit: contingency plans are already in place to enable us to continue to service EEA customers seamlessly even in the event that the UK exits from the EU without a deal
- New Breach: available for an additional premium on a case-by-case basis
- Synthetic Tax Covenant: available for an additional premium on a case-by-case basis
- Knowledge/Materiality Scrape: available for an additional premium on a case-by-case basis
Sell-side: we are specialists in sell-side insurance
Affirmative cover: our experienced underwriters allow us to offer a range of affirmative cover
See the Frequently Asked Questions below for further information.
What is W&I insurance?
In any M&A transaction both buyers and sellers face a range of potential exposures during the deal negotiation and after the transaction has completed. Regardless of the thoroughness of the disclosure process and the due diligence undertaken, there is always an element of the unknown.
W&I insurance, also known as representations and warranty insurance, can be purchased by a buyer or a seller in an M&A transaction to protect against loss or liability arising from an unknown or undisclosed matter that is covered by the warranties or tax indemnity agreed between the parties.
When can W&I insurance help?
- facilitate a clean exit for a seller who is either unwilling or unable to give contractual protections
- enhance an auction bid by proposing W&I insurance;
- provide a greater limit of liability than a counterparty is willing or able to offer;
- increase covenant strength and manage recoverability risk (Lloyd’s syndicates are all rated A by AM Best or A+ by Standard and Poor’s and Fitch);
- provide an alternative avenue of recourse (e.g. a private equity sponsor may not wish to sue its management team); and
- release committed capital (e.g. where a fund has given contractual protections, but intends to wind-up and return proceeds to investors).
What is not covered by W&I insurance?
A W&I insurance policy will not typically offer cover for:
- transactions as a replacement for disclosure or due diligence;
- known or identified matters as a result of disclosure and due diligence;
- forward-looking contractual protections;
- purchase price adjustments (e.g. leakage under a locked box mechanism);
- pension underfunding; and
- transfer pricing, secondary liabilities and the availability of tax assets.
Frequently Asked Questions
- Does Brockwell have any particular risk appetite or underwriting thresholds?
Jurisdictionally, our focus markets are the UK, continental Europe and Asia Pacific regions. We do not underwrite pure US market deals (though target businesses we underwrite in other markets may have operations in the US). Aside from banks and insurance companies, which are outside of appetite, we have no sector specific restrictions on our appetite and have insured transactions in a wide range of sectors. We do require the parties to appoint external professional advisors, and on a buy-side underwrite for there to be external written legal, financial and tax due diligence reports for review. Unless a pure real estate transaction, we require the Target to have audited accounts.
- What is the difference between buy-side and sell-side W&I insurance?
Under a buy-side policy, the buyer can proceed directly against the insurer without need to first claim against the seller. With a sell-side policy, the buyer will claim against the seller who will in turn recover from the insurance. From a process perspective, on a sell-side deal the underwriter engages with the seller and management, benefiting from their knowledge of the business. Whereas on the buy-side the underwriter engages with the buyer and its due diligence team, benefitting from their due diligence output.
- Are indemnities covered by W&I insurance?
A market standard generic indemnity, such as a UK tax covenant, will typically be covered. Specific indemnities, such as in respect of a problem identified in due diligence, will not be covered by W&I insurance. However, it may be possible to insure a specific indemnity issue under a separate Contingent Liability policy (for which the pricing and underwriting process and timing differs from W&I).
- What is ‘new breach cover’ in a W&I policy?
W&I policies do not insure future events, and so where there is a gap between signing and completion with warranties repeated at both dates, a bring down of disclosures is required at completion with any newly identified matters excluded from cover of the warranties given on the completion date. ‘New breach cover’ is a policy enhancement by which the W&I policy takes on the risk of warranty breaches arising between signing and completion. This policy enhancement is available on a case-by-case basis for an additional premium, for deals where the gap between signing and completion is expected to be no more than 2 months.
- What is a knowledge scrape in a W&I policy?
For an additional premium, an awareness qualifier applied by the seller across the entirety of the warranty suite can be disregarded for the purposes of the policy. The W&I policy would still implement an awareness qualification to specific warranties where such qualification would be in line with market practice.
- What is a synthetic tax covenant (indemnity) in a W&I policy?
A synthetic tax covenant (or ‘phantom tax covenant’) contained in a W&I policy is a tax covenant that is given by the insurer under a buy-side W&I policy instead of by the seller. This is available for an additional premium and operates in the same manner as a conventional tax covenant.
- What is affirmative cover in a W&I policy?
Where a matter is identified in due diligence as a low, very low or remote risk, notwithstanding that it is identified, for an additional premium we may be able to undertake further underwriting and offer cover for such identified matter.
- How long does it take for Brockwell to provide indicative terms for W&I insurance?
We typically provide a quote for insurance within the market standard of 48 hours from receipt of the submission, but can for exceptional cases provide a quote within 24 hours.
- How long does it take to obtain a finalised policy for W&I insurance?
Once appointed to underwrite, we require up to five business days to complete underwriting. This will include review of all due diligence, access to the data room, written responses to underwriting questions and an underwriting call to discuss any material outstanding items. Our objective is to make the process as straightforward and streamlined as possible for both the broker and the insured, to provide as wide a coverage position as possible and ensure there are no hold-ups.
- When should W&I insurance be explored?
It is prudent to consider whether insurance will be required early on in an M&A transaction (e.g. to ensure that appropriate due diligence and premium funds will be available). However, as the insurance can be arranged within five business days, it is efficient to wait until the transaction is reasonably well progressed before the deal team engages with an underwriter.
- Can you provide cover in the USA?
We do not currently offer insurance either to US insureds or in respect of purely US transactions.