Australia: Warranty and indemnity (W&I) insurance—bridging the gap in negotiations

Warranty and indemnity (W&I) insurance is an insurance product specifically developed for use in the mergers and acquisitions (M&A) market. The product insures a seller or buyer against the risks of the other party breaching a warranty or indemnity in a share or asset sale agreement. W&I insurance is a valuable tool for parties involved in M&A and is increasingly being used in negotiations to bridge the gap in risk allocation between sellers and buyers.

Such policies can be procured by a seller or a buyer, however the vast majority of W&I policies in Australia are buy-side policies. To determine whether a buy-side or sell-side policy is more appropriate, the financial and commercial circumstances of the transaction and the intended purpose of obtaining W&I insurance should be considered.

A buy-side policy provides the buyer with direct recourse to the insurer for a breach by the seller of a warranty or indemnity covered by the policy. Insurance premiums payable typically form part of the price negotiations between the parties to the transaction. In Australia, premiums can be paid by the buyer and/or the seller and the price is negotiable, normally agreed to be between 1% and 1.3% of the insured risk.

On the other hand, a sell-side policy provides coverage to the seller in the event that the buyer makes a claim against the seller for a breach of an insured warranty or indemnity. Premiums for sell-side policies are typically paid by the seller alone, as the buyer may not be aware of the existence of a sell-side policy.


Purchasing W&I insurance can be an effective tool in negotiations to break deadlocks regarding the allocation of risk to the seller or buyer. Other key benefits of a W&I insurance policy include:

Clean exit

W&I insurance is often considered by private equity funds and sophisticated investors as an effective clean exit mechanism, which provides greater certainty of the extent of any liability exposure associated with the transaction. Despite this, the seller will remain liable for any losses incurred due to a breach of an insured warranty or indemnity where they have engaged in fraudulent activity.

Fraudulent activity is excluded from coverage in sell-side policies and, although covered in buy-side policies, insurers will have a right to subrogate and pursue the fraudulent seller directly. There may also be a carve-out to the "no recourse" provisions in a sale document, which gives the buyer a direct right of action against the seller.

Credit risk W&I insurance provides confidence to a buyer in its ability to recover losses for a breach of warranty or indemnity. The insurer's balance sheet will effectively replace any perceived credit risk associated with the seller, which may remove the need for an escrow or deferral of purchase price.
Preserve relationships If the seller or its representatives (e.g. a founder) are employed or engaged by the buyer post-acquisition, W&I insurance enables the buyer to make a claim directly with the insurer, effectively preserving the relationship with the founder and management team. The same principle applies to joint venture parties.
Multiple sellers It may be difficult for a buyer to recover on a claim against multiple sellers, particularly in circumstances where they are located in different jurisdictions. W&I insurance enables the buyer to make a claim directly with the insurer.


The timetable for completing a W&I insurance policy is short and will often start with the transaction parties, or their advisers, engaging a specialised W&I insurance broker to obtain policy quotes from domestic and international insurance markets.

The W&I insurance policy begins on signing and its coverage becomes unconditional provided certain conditions in the policy (e.g. completion of the transaction) are satisfied. The policy coverage will usually not cover the full transaction amount and will not extend to matters relating to any breach of an insured obligation that were known by relevant transaction team members of the insured, before the inception of the policy. The insurer takes on the risk of a breach of an insured warranty or indemnity, subject to any matter disclosed in a no claims declaration (Completion NCD) given to the insurer by the insured on completion.

New breach cover

Warranties and indemnities are normally given by the parties at the time of signing the sale agreement and again at completion. If the insured becomes aware of a breach of an insured obligation that occurred in the period between signing and completion—and that breach did not constitute a breach of a signing warranty—the matter will be excluded from W&I policy coverage as the insured is obliged to disclose the information in the Completion NCD. Additionally, no recourse provisions in a sale agreement may preclude the insured from making a claim against the other party. Consequently, the insured is potentially left exposed to new breaches that arose in the period between signing and completion.

Additional coverage can be obtained for any breach of a warranty or indemnity where the event first occurs and is discovered by the insured between signing and completion (New Breach Cover). New Breach Cover will often cover a limited period of days between signing and completion (e.g. 15, 30 or 60 days) with an option to extend the coverage period for an additional premium. Such cover can be expensive depending on the time period between signing and completion, as well as the quality of the due diligence process and the risk profile of the target business.

Underwriting process

To secure the best coverage, an insurer will require that thorough due diligence has been performed, the transaction has been negotiated and settled on arm's length terms (as the parties would have in the absence of W&I insurance) and the sale document is balanced, and not overly friendly or unfavourable toward one party. It is also beneficial to have a detailed disclosure letter identifying specific disclosures against the warranties.

It is important to understand that having W&I insurance does not replace the due diligence process in a transaction. Underwriting is often a condensed process conducted within a short time frame, in which the insurer assesses the quality of the buyer's diligence program. Other than where specific issues are identified, there is no independent risk assessment of the underlying substantive risks of the transaction. The risks that will be insured under the W&I policy are the unknown risks remaining after a robust due diligence process has been conducted.

If the insurer is not satisfied with the quality of the due diligence conducted by the buyer, it may:

  • undergo comprehensive Q&A session(s) with the insured to attempt to fill in gaps in diligence
  • exclude or qualify coverage in relation to particular matters
  • partially cover specific warranties or indemnities, or
  • increase the premium or adjust the retention component of the policy to address the perceived risk.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Withers LLP
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Withers LLP
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions