Warranty And Indemnity Insurance In India: An Evolving Concept

Introduction

Interests of each of the parties to an M&A transaction are diametrically opposed. Buyers, for example, will be reluctant to enter into deals if the warranties provided by the seller in a sale & purchase agreement ("SPA") are too limited, or if they have concerns about the possibility of enforcing the warranties. Sellers, on the other hand, will be worried about their liability for a breach of warranty and will therefore try to restrict the scope of their warranties to the bare minimum. Striking a balance can be difficult, which means that adequate cover for such risks are often deal breakers.

Traditionally, the parties either go about the usual end results- dispute resolution mechanism for breach of warranties and indemnities that cover specific transactional risks, seller providing for money in escrow or bearing the risk out of its own pocket. With time, the mechanism of warranty and indemnity insurance ("W&I Insurance") has been developed to