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.

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”

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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.