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W&I Insurance

Sellers

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We offer a premium service to help our clients meet their commercial goals.

Originally, W&I insurance was a sell-side product and was used by exiting private equity firms to effectively cap their liability at £1 and permit distribution of sale proceeds to investors. The use of W&I insurance has developed such that Buyer-side W&I policies is overwhelmingly sought which means that fewer insurers offer sell-side W&I insurance. However, our Team is very experienced with offering sell-side solutions and there are occasions where a seller needs its own protection.

If you intend the buyer to be the policyholder then visit Buyer W&I, although see the FAQ below if you are considering introducing W&I insurance to a buyer in order to facilitate a clean exit.

We offer a premium service to help our clients meet their commercial goals. Our Team are experts in providing W&I insurance – bringing together some of the most experienced practitioners in the industry – which means we will get the deal done.

And afterwards our Claims process is capable of dealing with complex matters as efficiently as possible and is supported by robust Risk Capital from major insurers.

For more information about Brockwell and our appetite see About Us and Risk Appetite.

How can W&I insurance help me?

Ultimately a seller wants to be able to spend or distribute transaction proceeds without any concern that the buyer will seek recovery under contractual protections.

W&I insurance for a seller is a tool for mitigating financial risk (e.g. by transferring financial risk to insurance). For example, a W&I policy can help by:

  • facilitating a seller’s clean exit from an investment
  • taking on historic contractual liabilities (e.g. to release committed capital)

Where there is a sell-side W&I policy, the buyer will claim against the seller who will in turn recover from the insurance (the buyer may not be aware the W&I policy exists).

A seller may also consider refusing to give contractual protections and insisting on a Buyer W&I policy. Where an auction process will be run, a seller might consider a “stapled” arrangement whereby the data room includes a preliminary buyer W&I policy and auction draft sale documents with liability capped at £1. See the FAQs below for further details.

A seller may also consider a sell-side W&I policy post-transaction to limit or prevent any outstanding financial recourse against the seller.

We want to facilitate your transactions – if you have any specific coverage requests please let us know and we will consider whether we can accommodate these or create a bespoke solution.

If a buyer has proposed an indemnity or an escrow, it may be that with a separate underwriting work stream we can get comfortable with the risk and use our in-house expertise to offer separate protection under a standalone Tax or Contingent policy. Sellers often propose these alternatives to buyers in order to facilitate their clean exit.

Equally there can be a question mark over whether sale proceeds are capital or revenue (e.g. deferred consideration) and when tax is payable (Does rollover treatment apply?). We can offer sellers certainty with a Tax policy.

Who typically uses sell-side W&I insurance?

There are two scenarios where sell-side W&I insurance is regularly used:

Management / shareholders / family-owned businesses

Where a buyer does not seek W&I insurance – e.g. it is a trade buyer that is not concerned with an investment model or wants the seller to have ‘skin in the game’ – then the seller will be financially liable for the contractual protections in the sale documentation. If the seller is retiring or wants to use the sale proceeds for another venture then this may be particularly unattractive. In this case a sell-side W&I policy can be used to limit any financial liability. Sometimes a seller will seek such a policy some time after the transaction has closed.

Fund wind-up

An asset manager may wish to liquidate a fund and return proceeds to investors. However, if the fund has given contractual protections in respect of investments it has exited then the fund cannot be wound-up until the time limit in respect of those protections expires. An alternative is to seek a post-transaction sell-side W&I policy to assume the financial liability for the remainder of the time limit.

FAQs

Brockwell will undertake a Q&A process with the seller (and management) in order to gain an understanding from their knowledge of the business, as well as a review of the data room (vendor due diligence is helpful, but not required).

No. We are able to underwrite based on access to the transaction data room and Q&A with the seller/management

No. Vendor due diligence is helpful, but not required.

If there is vendor due diligence, then we may be able to offer affirmative cover for an additional premium.

Where a matter is noted in vendor due diligence, but is theoretical in that it does not relate to a substantive identified risk and is classified as a low, very low or remote risk, then notwithstanding the reference in the due diligence (for an additional premium) we may be able to undertake further underwriting and offer cover for such identified matter.

We are only able to offer affirmative cover where the risk noted in the due diligence is straightforward and there is sufficient due diligence (or further information available) to allow us to understand the risk.

Typically the policyholder pays the premium, but this can be subject to commercial negotiation between the parties.

This is where, as part of an auction process, a seller introduces W&I to a buyer in order to achieve a clean exit (i.e. liability will be capped at £1 and the SPA may note that the only financial recourse is against insurance). The insurance process will commence on the sell-side and then ‘flip’ to the buy-side.

A ‘soft staple’ only requires a draft SPA, latest financial accounts, and an information memorandum (if available). A broker will survey the insurance market for quotes and then their report of quotes is uploaded into the data room.

Alternatively, a ‘hard staple’ can offer a seller more security. In preparation for an auction sale, where a seller has commissioned vendor due diligence, a seller may seek insurance quotes and appoint a W&I insurance provider. This insurer will then undertake an initial sell-side underwriting process and an initial policy which is largely agreed will be provided in the data room.

When bidders are given access to the data room they are then given access to the insurance provider who ‘flips’ to the buy-side. As the insurance provider is already familiar with the business and the transaction this ensures a smooth, agile process and permits rapid progress to signing once a preferred bidder is selected.

As each bidder will be competing, the insurance can either wait to progress with the preferred bidder or the insurance provider can form confidential deal teams operating behind information barriers (known as ‘trees’) to support each bidder separately. We have previously operated up to five W&I trees. Each tree will cease underwriting as their bidder drops out, with the remaining underwriting team left to support the preferred bidder.

Tax insurance provides an indemnity to the policyholder for an identified tax risk. We regularly cover international risks between £1m and £45m to assist sellers with derisking indemnities or releasing funds from escrow. For more information click here.

This insurance provides protection against uncertain legal interpretation. The policy includes an indemnity for an identified risk and can be used in both a contentious and non-contentious context. For more information click here.

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