Warranty & Indemnity Insurance

Warranty & indemnity insurance is not a legal requirement. But, if you are buying or selling a business having a policy in place provides peace of mind that any misrepresentations will not lead to significant financial cost. Making for a more attractive proposition.

Once you have sold a business, claims against you can be made up to six years post-sale.

If a warranty is proven to be inaccurate, even if by accident, as the seller you’ll be responsible for reimbursing the buyer for the loss they have suffered as a result. A W&I policy will help protect your business sale proceeds and provide cover for defence costs arising from the claim of an inaccurate warranty.

The obvious benefit is the removal of the financial risks associated with a claim against you. However, there are other, less obvious benefits.

• Maintaining W&I insurance may help you avoid the need for escrow, freeing up the sale proceeds.
• It provides peace of mind for the buyer, as they know valid claims will be paid. Making your business a more attractive proposition.

Yes, warranty and indemnity insurance can be purchased by the buyer in a mergers and acquisitions deal. The advantages of doing so are:

• Avoids risk of the buyer potentially having to bring a warranty claim against a seller who continues to be employed by the business after completion, therefore protecting the relationship with valuable staff as a claim is instead made under the policy.
• Removes the risk of a seller not having the funds to pay if a warranty claim arises.
• Can improve the buyer’s negotiating position as a seller may be willing to consider a lower offer if they know that the sale proceeds will be immediately available to them, rather than waiting for a warranty period to expire or having money held back in an escrow account.