FCA authorised · FRN 724952 0117 325 0027Quote & buy →
Warranty and indemnity insurance
W&I underwriters rely on the buyer's due diligence reports, the disclosure letter and an underwriting call to decide what to cover, because they cannot investigate the target themselves. The quality of that diligence largely decides the scope of the policy and the number of exclusions.
Part of: Warranty and indemnity insurance explained
In short
A W&I insurer does not audit the target. It underwrites the buyer's process: the financial, tax and legal due diligence reports, any commercial, technical or environmental reports, the data room, the disclosure letter and the draft SPA. The insurer then holds an underwriting call with the buyer's deal team and advisers to test what was examined. Warranty areas that were not properly diligenced are commonly excluded. Before binding, the buyer must make a fair presentation of the risk under the Insurance Act 2015, and usually signs a no claims declaration at signing and completion. Cover is subject to the insurer's acceptance and the policy terms.
A warranty and indemnity policy insures the seller’s warranties in the sale and purchase agreement (SPA). The insurer is not party to the deal and often has days or a few weeks, not months, to underwrite it. It therefore relies on the work already done by the buyer’s advisers, and asks one central question: was each warranty tested by a proper investigation?
Where the answer is yes, the insurer is usually comfortable covering the warranty for unknown breaches. Where an area was not examined, or was examined only lightly, the insurer commonly excludes it, because covering it would mean taking a risk the buyer itself did not look at. That is why the scope of the due diligence tends to shape the policy more than any other factor.
The practical lesson is to plan the diligence with insurance in mind. If the buyer intends to rely on a W&I policy, its advisers can agree the scope of each report with that in view, and a broker can flag areas insurers are likely to probe for the target’s sector. Changing scope after the reports are finished usually costs more time than getting it right at the start.
| Report | What it usually covers | Why the insurer reads it |
|---|---|---|
| Financial | Quality of earnings, working capital, net debt, accounting policies | Supports the accounts and financial warranties |
| Tax | Corporation tax, VAT, employment taxes, transaction taxes and historic filings | Supports the tax warranties and any tax deed cover |
| Legal | Corporate records, material contracts, employment, property, litigation, IP, data protection, regulatory | Supports most of the remaining warranties |
| Commercial | Market, customers, pipeline | Context; forward-looking matters are usually not covered anyway |
| Technical or environmental | Property condition, contamination, technology, cyber, depending on the target | Needed before insurers narrow sector exclusions |
| Insurance | The target’s existing cover and claims history | Shows how operational risks are already insured |
Red flag reports, which list problems only, may be accepted on some deals, but insurers often want enough narrative to understand what was checked. Where the target is a small company exempt from audit, underwriters typically put more weight on the financial diligence. Reports should be addressed to, or capable of being relied on by, the buyer, and the insurer will usually need to see them in full. See W&I for smaller business sales.
The insurer will usually ask for access to the virtual data room, the index, and the questions and answers log. It reads the disclosure letter to see what the seller has told the buyer, because fairly disclosed matters are commonly excluded, and it reads the draft SPA to see what is warranted and how loss is defined.
Insurers often comment on the warranties themselves. A warranty given without any diligence behind it, or one drafted far more widely than usual, may be excluded or read down for insurance purposes. Agreeing a sensible warranty set early saves argument later. Our page on what W&I excludes explains how this works.
Once the insurer has read the documents it holds a call with the buyer’s deal team and advisers. Typical points include:
After the call the insurer issues a draft policy, often with written follow-up questions. Answers form part of the presentation of the risk, so they need to be accurate and complete.
W&I is non-consumer insurance. Under section 3 of the Insurance Act 2015 the insured must make a fair presentation of the risk before the contract is entered into, including disclosure of every material circumstance it knows or ought to know. Under section 4, a company is treated as knowing what its senior management or those responsible for its insurance know, and what a reasonable search would reveal. See the fair presentation duty and section 4 on the insured’s knowledge.
At signing, and usually again at completion, the buyer commonly signs a no claims declaration confirming the deal team is not aware of any breach. Breaches discovered between signing and completion are often excluded for that reason.
Regulatory approvals sit outside the policy. Under the National Security and Investment Act 2021, acquiring a qualifying entity active in one of 17 sensitive areas of the economy can require government approval before completion. GOV.UK says a notifiable acquisition completed without approval is void, and civil penalties can reach 5% of global turnover or £10 million, whichever is greater. The government announced changes to the sectors in March 2026, which require secondary legislation, so check the current list. Insurers expect the buyer’s lawyers to have considered this; W&I will not pay for a failure to obtain approval.
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 draft SPA, the due diligence reports or their scope, the disclosure letter and the timetable. See warranty and indemnity insurance explained, buy-side vs sell-side W&I, tax insurance in M&A and insurance due diligence for funding rounds.
No. They underwrite the buyer's due diligence: the financial, tax and legal reports, any specialist reports, the data room, the disclosure letter and the draft SPA. They then test it on an underwriting call. Areas that were not properly diligenced are commonly excluded from the policy.
The insurer talks to the buyer's deal team and advisers about the scope of each report, the issues found and how they are being dealt with, sector risks, regulatory approvals and anything that has changed. It often lasts an hour or two, and the answers form part of the presentation of the risk.
Sometimes. Some insurers accept red flag reports, particularly on smaller deals, but they often want enough detail to see what was checked. Where a report is thin on an area, cover for the related warranties may be excluded or limited. Ask your broker before agreeing the scope of the reports.
It is a statement, commonly signed by the buyer at signing and again at completion, confirming that the deal team is not aware of any breach of warranty or claim. Matters the buyer becomes aware of before signing the declaration are usually excluded from cover.
No. Approvals such as those under the National Security and Investment Act 2021 are for the parties and their lawyers to manage. GOV.UK says a notifiable acquisition completed without approval is void and can attract civil and criminal penalties. Insurers expect approvals to be addressed in the deal process.
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.
