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.
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.
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.
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.