Warranty & Indemnity
The use of Warranty & Indemnity insurance to aid corporate transactions has increased significantly in recent years.
When buying a business, the buyer will extract warranties, valid for a specific period of time, from the seller to reassure him about the state and nature of the business he is buying. The seller will be asked to warrant certain factual situations and/or the state of litigation against it. If a warranty later turns out to be incorrect, the seller will be obligated to compensate the buyer.
Such warranties and indemnities create uncertainties for the buyers & sellers alike. The seller will not know if he is to face a substantial claim and the buyer may insist that part of the purchase price be kept in a separate escrow account until the warranty period ends.
The uncertainty is unsettling for the seller who may be a private individual retiring from the sale of the business and for the buyer, there might be concern that the seller may not be able to meet the obligations of claim under the warranty or indemnity.
Insurance cover responds to these concerns.
Warranty & Indemnity insurance is written on a ‘claims made’ basis with the policy period corresponding with the duration of the share sale purchase agreement. The policies cover damages payable for breach or alleged breach of a warranty or indemnity, plus legal defence costs and will be subject to a fairly large deductible set at the minimum level of claim threshold (de minimis) or more.
For more information, assistance or a quotation, please either contact us, complete an enquiry form or use the online phone me request.