Warranty and indemnity insurance (W&I) in recent years has become a customary aspect of private equity and other M&A transactions, with investors well aware of the deal-enabling benefits (in particular, the transfer of risk onto third parties and the facilitation of “clean exits”). As a result of this increasing trend, there has also, as expected, been a sharp increase in the notification of claims by purchasers under such policies. Historically, there have been reports of a small number of full insurance limit claim payments, such as a €50 million to FSN Capital concerning its acquisition of Gram Equipment. As the number of claims made increases, insurers are scrutinising the terms of W&I policies ever more closely. It is therefore important that insureds consider how to increase the chances of recovery under a W&I policy in the event of potential claim.
In light of this, there are some simple “do”s and “don’t”s which insureds should bear in mind, both during negotiation of the policy, as well as at the claims stage. We have set out below several of these to give a flavour of what to watch out for. However, this is by no means an exhaustive list.
Ensuring that you have the best possible chance at recovering for loss under your W&I policy through negotiating the policy at the placement stage and handling the claims process
appropriately when a loss arises will increase the value of the product for your business. It will also move W&I from being simply seen as a “deal-enabler” to a useful risk mitigation tool.
We can help every step of the way. Get in touch if you have any questions or would like to discuss this further.
Authored by Jamie Rogers, Charles Shute and Ellie Rees
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