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Warranty and indemnity (W&I) insurance covers financial loss from a breach of the warranties, and some indemnities, that a seller gives in a business sale agreement. It moves that risk from the seller to an insurer, so the buyer has someone solvent to claim from and the seller keeps more of the price.
Part of: Warranty and indemnity insurance explained
In short
W&I insurance, also called M&A insurance or representations and warranties insurance, protects against unknown breaches of warranty in a share or asset sale. In the UK most policies are commonly bought on the buy side, so the buyer claims directly from the insurer. Underwriters rely on the buyer's due diligence and the seller's disclosure letter. Known issues, forward-looking statements and price adjustments are commonly excluded. Cover is subject to the insurer's acceptance and the policy terms.
In a sale and purchase agreement (SPA) the seller gives warranties, statements of fact about the business, and sometimes indemnities, promises to pay for particular liabilities. If a warranty is untrue and the buyer suffers loss, the buyer can claim against the seller. A W&I policy insures that loss, up to a limit and above a retention, for breaches nobody on the buyer’s side knew about. See warranty for the general term.
A buy-side policy insures the buyer, which claims from the insurer directly. A sell-side policy insures the seller against the buyer’s claims, but typically excludes the seller’s own fraud. Buy-side policies are more common in the UK; see buy-side vs sell-side W&I.
| Term | Meaning |
|---|---|
| Retention | Loss the insured bears before the insurer pays |
| De minimis | Claims below this amount are ignored |
| Limit | The most the insurer will pay in total |
| Synthetic tax deed | Tax covenant cover given by the insurer rather than the seller |
| Knowledge scrape | Removes the seller’s knowledge qualifiers from warranties for insurance purposes, where agreed |
| Materiality scrape | Ignores materiality qualifiers when assessing breach or loss, where agreed |
| No claims declaration | The buyer’s confirmation, at signing and completion, that it knows of no breach |
Insurers underwrite the buyer’s financial, tax and legal due diligence, the disclosure letter and the draft SPA, then hold an underwriting call. Areas not properly diligenced are commonly excluded. As non-consumer insurance, W&I is subject to the Insurance Act 2015, so the insured must make a fair presentation of the risk before cover starts. See due diligence and W&I underwriting and fair presentation.
Common exclusions include known matters, forward-looking warranties, purchase price adjustments, defined benefit pension underfunding and uninsurable fines; see what W&I excludes. Identified tax risks may be covered by tax insurance instead.
To claim, the buyer notifies the insurer within the policy period and proves breach and loss. Insurers commonly waive subrogation against sellers except for fraud. Under section 13A of the Insurance Act 2015, insurers must pay sums due within a reasonable time. See how W&I claims work.
Apex arranges warranty and indemnity (W&I) and M&A insurance; see also W&I for smaller business sales. 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 activities, turnover, location and claims history, plus the draft SPA, due diligence reports and timetable. The full guide is warranty and indemnity insurance explained.
It is insurance that pays if a seller's statements about a business in the sale agreement turn out to be untrue and the buyer loses money as a result. It covers problems nobody on the buyer's side knew about, up to a limit and above a retention, and lets the buyer claim from an insurer instead of the seller.
W&I is the main type of M&A insurance, and the terms are often used interchangeably. In the United States it is usually called representations and warranties insurance. The M&A insurance market also includes tax insurance and other policies for specific identified risks in a deal.
Either can, but in the UK the buyer is most commonly the insured. Sellers often start the process so that bidders know cover is available, then the policy is issued in the buyer's name. Who pays the cost is negotiated as part of the deal.
No. Matters the buyer's deal team knew about, or that the seller fairly disclosed, are commonly excluded. Known issues are usually dealt with through the price, a specific indemnity from the seller, or separate insurance such as tax insurance where the risk can be underwritten.
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.
