Warranty and indemnity insurance (W&I
Insurance) continues to be an increasingly common
instrument used by merger parties to manage deal risk in Australian
M&A transactions.
In broad terms, W&I Insurance involves the underwriter
indemnifying the insured for any loss arising out of a breach of
warranty or a claim under the tax indemnity in the relevant sale
and purchase agreement. The insured can either be the buyer (a
"buyer-side" policy) or the seller (a
"seller-side" policy) but will most often be the buyer.
Both policies will also cover reasonable legal costs incurred by
the insured in defending certain claims.
We expect that buyer-side policies will continue to dominate
whilst M&A parties are willing to structure the transaction and
policy to ensure that there is little or minimal residual liability
for the sellers. Under a buyer-side policy, the insurer waives its
right to subrogate against a seller other than in the case of a
seller's fraud and an insured
