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Warranty and indemnity insurance
A buy-side W&I policy protects the buyer against loss from breach of the seller's warranties; a sell-side policy protects the seller against the buyer's warranty claims. Which side holds the policy decides who claims, who carries the fraud risk and how cleanly the seller can walk away.
Part of: Warranty and indemnity insurance explained
In short
In UK deals, warranty and indemnity policies are most commonly bought on the buy side. The buyer claims directly against the insurer, so the seller can accept a much lower liability cap under the sale agreement and keep more of the proceeds, and the buyer avoids suing people who may now be its own managers. A sell-side policy covers the seller's liability to the buyer instead, but it typically excludes the seller's own fraud. Many sellers start the insurance process themselves and hand the policy to the buyer before signing. Either way, cover is subject to the insurer's acceptance, the due diligence and the policy terms.
In a share or asset sale the seller gives warranties in the sale and purchase agreement (SPA): statements about the business, such as that the accounts are accurate, there is no undisclosed litigation and tax has been paid. If a warranty turns out to be untrue and the buyer suffers loss, the buyer can claim against the seller for breach of contract. W&I insurance moves some or all of that risk to an insurer. The question is whose risk it covers.
On a buy-side policy the buyer is the insured. It claims from the insurer directly, usually without having to sue the seller at all. On a sell-side policy the seller is the insured. The buyer still claims against the seller under the SPA, and the seller then claims under its policy for the amount it has to pay.
| Point | Buy-side policy | Sell-side policy |
|---|---|---|
| Insured | The buyer | The seller |
| Who the buyer pursues | Usually the insurer | The seller, who then claims on its policy |
| Seller fraud | Usually still covered for the buyer; the insurer may recover from the fraudulent seller | Typically excluded, so the buyer falls back on the seller |
| Cover beyond the SPA | Can sometimes extend the limit or period beyond the seller’s contractual cap | Tied to the seller’s liability under the SPA |
| Who buys it | The buyer, or the seller arranges it and hands it over | The seller |
These are general positions. The actual cover depends on the wording each insurer offers for the deal.
Buy-side policies are commonly preferred in the UK market for practical rather than legal reasons.
Illustrative: a trade buyer acquires a manufacturing company from its two founders, who stay on as managing and sales directors. Six months later it finds that a major customer contract had been terminated before signing, contrary to a warranty. Under a buy-side policy the buyer notifies the insurer and the claim runs between the buyer and the insurer. The founders are not defendants, unless the insurer can show fraud.
For a seller, the main attraction of a buy-side policy is that the sale proceeds stop being exposed to warranty claims. Where the buyer has its own policy, sellers often negotiate a liability cap far below the price, sometimes a nominal amount for general warranties, and avoid having part of the price held back in escrow.
A clean exit is rarely total. Sellers commonly remain liable for their own fraud, for any specific indemnities given for known issues the policy will not cover, and sometimes for title and capacity warranties. They also still need to give a full and accurate disclosure letter, because the policy excludes what the buyer knew, and the buyer will want the SPA to reflect that.
Selling also changes the seller’s own insurance position. Directors who resign at completion usually want run-off for their past decisions; see our pages on D&O run-off on a sale and what happens to your insurance when you sell a business.
Sell-side policies are less common but still used. Typical reasons include:
A common middle route is the seller-initiated buy-side policy. The seller’s adviser approaches insurers early, often in an auction, so that bidders know W&I is available. The policy is then issued in the buyer’s name before signing, and the buyer runs the underwriting with its own due diligence. This keeps the benefits of a buy-side policy while letting the seller control the timetable. Our guides to due diligence and W&I underwriting and W&I for smaller business sales explain what insurers expect.
W&I is non-consumer insurance, so the Insurance Act 2015 applies. Before the contract is entered into, the insured must make a fair presentation of the risk to the insurer (section 3). On a buy-side policy that duty falls on the buyer; on a sell-side policy, on the seller. Under section 4, a company knows what its senior management, or the people responsible for its insurance, know, and what a reasonable search would have revealed. W&I wordings often narrow this to a named deal team, so check the definition.
If the insured makes a fraudulent claim, section 12 says the insurer is not liable to pay it, may recover sums already paid and may treat the contract as terminated from the fraudulent act. See the fair presentation duty and fraudulent claims under the Act.
Time limits matter too. A claim for breach of a warranty in an SPA signed as a simple contract must be brought within six years of the date the cause of action accrued under section 5 of the Limitation Act 1980, or twelve years if it is executed as a deed (section 8). SPAs usually set much shorter contractual claim periods, and the W&I policy period commonly mirrors them, with longer periods for tax and fundamental warranties.
Apex arranges warranty and indemnity (W&I) and M&A insurance. A broker reads each enquiry and comes back with options; there is no fee for a quote, and cover is subject to the insurer’s acceptance and the policy terms. To quote we need the target’s business activities, turnover, location and claims history, plus the deal value and structure, the draft SPA, the due diligence reports, the disclosure letter and the timetable to signing. See also warranty and indemnity insurance explained, what W&I excludes and how W&I claims work.
A buy-side policy insures the buyer, which claims directly from the insurer if a warranty in the sale agreement proves untrue. A sell-side policy insures the seller against the buyer's warranty claims. Buy-side is generally more common in the UK because it typically still protects the buyer if the seller was fraudulent, and the buyer does not need to sue the seller.
Yes. In many sales the seller's advisers approach insurers early so bidders know cover is available, then the policy is issued in the buyer's name before signing. The buyer usually completes the underwriting using its own due diligence. The seller benefits because it can offer a lower liability cap without putting off bidders.
Not completely. Sellers commonly stay liable for their own fraud, and often for specific indemnities covering known issues that the policy excludes. They still need to give an accurate disclosure letter. For general warranty claims, though, a buy-side policy can let the seller cap its liability at a low level.
Yes. W&I is non-consumer insurance, so the insured must make a fair presentation of the risk before the policy starts, and the Act's rules on fraudulent claims and late payment apply. The policy wording, including how it defines the insured's knowledge, still needs checking before you rely on it.
It is negotiated as part of the deal. On a buy-side policy the buyer usually pays, but sellers sometimes contribute or adjust the price, especially where the seller asked for the policy to support a low liability cap. The SPA normally records who bears the cost.
Tell us what your business does, your turnover and any claims. A broker reads every enquiry and comes back with options. No fee for a quote. Or call 0117 325 0027.
Start a commercial enquiry Request a callbackApex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information, not advice on your individual circumstances, and it does not guarantee that cover will be available or on what terms.
