Merel van Asch and Rens Markus published an article (in Dutch) concerning claims under a warranty & indemnity (W&I) policy (M.M. van Asch & R.L. Markus, 'Claims onder een W&I-verzekering', TOP 2019/7). The total amount of claims under W&I-insurances keeps rising. W&I-policies often contain extensive terms and conditions, for which reason insured buyers may lose sight of the (semi-)mandatory legal provisions regarding insurances included in the Dutch Civil Code (DCC).
In the article, Merel and Rens deal in greater depth with the notice of claims, coverage and the most important rights and duties during the claims process. In this blog, we provide a high-level summary thereof.
Notice of claims
The W&I-insurance is a 'claims-made'-policy, so a claim must be made during the policy period. In case the claim notice is submitted to the insurer during the policy period, but not as soon as possible after the insured buyer gained knowledge of the (potential) claim, the insurer will be legally permitted to reduce the insurance payment with any damage suffered by the insurer due to the lateness of the submission of the claim notice. If a claim is submitted to the insurer within the policy period, but not as soon as possible, this can only lead to a full lapse of the insurance claim if (i) the policy stipulates this and (ii) the insurer was harmed in its reasonable interest.
Is the claim insured?
Some insured warranties are often qualified by, for example,the addition of a knowledge qualifier in comparison to the warranties included in the share purchase agreement (SPA). A breach of the warranties under the SPA therefore does not always lead to a breach of the corresponding insured warranty. At signing and closing, it is often required that a 'no claims declaration' is issued by the insured buyer to the insurer, in which the insured buyer declares that it is not aware of a breach of the insured warranties or the tax indemnity. This 'awareness' is mostly limited to actual knowledge of the insured buyer or his deal team. This is, in our view, a deviation from Section 7:928 DCC, which deviation should for the avoidance of doubt be mentioned in the policy.
Alleged intentional breaches by the target of an insured warranty should not preclude coverage. Also fines imposed on the target in relation to acts or omissions prior to closing can in our view be covered. Section 7:952 and 3:40 DCC should not prevent coverage as only the buyer is insured, who did not act intentionally in relation thereto. The only relevant question with respect to intent should be whether the target acted intentionally.
Rights and duties during the claims process
During the claims process under the W&I insurance, two claims are of relevance: (i) the claim for coverage of the insured buyer against the insurer and (ii) the (possible) claim of the insured buyer against the seller or third party (in the event of a third party claim).
The interests of the insured buyer and the insurer are not always parallel with respect to a claim against the seller or a third party. Sometimes (for example due to commercial reasons) it is more beneficial for the insured buyer – in contradiction to the insurer – to settle than to litigate. Subrogation of the insurer in claims of the insured buyer against the seller is mostly excluded, except in the event of intent or gross negligence by the seller. As it is often not immediately clear whether the insurer subrogates, claims against the seller may then not be waived by the insured buyer.
The conduct with respect to the claim against the seller and the coverage claim against the insurer should be coordinated precisely to avoid that a position taken with respect to one claim harms the position of the insured buyer with respect to the other claim.
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.