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Warranty & Indemnity Insurance

M&A insurance provides protection against the risk that warranties and guarantees are not fulfilled. This protects the buyer against unforeseen losses and gives the seller the security of knowing that they will not be liable for such risks after the transaction has been completed.

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Cover and benefits

Warranty & Indemnity insurance is not only suitable for large international corporations, but also for SMEs in a wide range of industries. This insurance is usually taken out for a specific M&A transaction and the period of insurance is 7 years.

Breach of warranty/guarantee

  • Breach of fundamental and general guarantees 
  • Indemnification with regard to tax issues

Defense costs

  • Accusations by third parties
  • Legal and prosecution costs incurred immediately

Prevention costs

  • Loss prevention expenses
  • Loss prevention expenses

Possible scenarios

We will show you examples of the situations in which Warranty & Indemnity insurance can be worthwhile.

Incorrect presentation of financial data

When selling a company, the seller assures the buyer of correct financial data. If it later transpires that the balance sheet is incorrect and significant liabilities have not been disclosed, the insurance protects against financial losses.

Environmental obligations

When purchasing an industrial company, the seller guarantees that there are no violations of environmental regulations. If violations are discovered after the acquisition, the Warranty & Indemnity insurance covers the financial consequences of environmental violations and remediation costs.

Breaches of contract

The seller guarantees intact contracts. If a major customer or supplier cancels after the purchase or if conditions are not met, the Warranty & Indemnity insurance covers the resulting financial losses.

Stipulare l’assicurazione

Incorrect presentation of financial data

When selling a company, the seller assures the buyer of correct financial data. If it later transpires that the balance sheet is incorrect and significant liabilities have not been disclosed, the insurance protects against financial losses.

Environmental obligations

When purchasing an industrial company, the seller guarantees that there are no violations of environmental regulations. If violations are discovered after the acquisition, the Warranty & Indemnity insurance covers the financial consequences of environmental violations and remediation costs.

Breaches of contract

The seller guarantees intact contracts. If a major customer or supplier cancels after the purchase or if conditions are not met, the Warranty & Indemnity insurance covers the resulting financial losses.

Breaches of contract

The seller guarantees intact contracts. If a major customer or supplier cancels after the purchase or if conditions are not met, the Warranty & Indemnity insurance covers the resulting financial losses.

Warranty & Indemnity Insurance: purpose, solutions and benefits

Purpose and benefits

Securing guarantees: 
As part of a purchase contract, the seller often gives guarantees (warranties) and assurances regarding the condition of the company. These guarantees can relate to various aspects, such as financial circumstances, compliance, assets and liabilities. Warranty insurance offers protection if guarantees and assurances from the purchase contract are not honored.

Indemnities: 
The seller undertakes to indemnify the buyer in the event of certain contractually agreed risks or losses. This agreement shall apply upon completion of the transaction.

Risk minimization
M&A insurance offers protection against risks arising from unfulfilled guarantees or false indemnities in mergers and acquisitions. This protects the buyer from unexpected losses and gives the seller the security of no longer being liable for such potential risks once the transaction has been completed.

M&A insurance solutions from Zurich

  • Buy-side policy: this insurance is taken out by the buyer. It protects them against losses if guarantees or indemnities are not honored by the seller.
  • Sell-side policy: This insurance is taken out by the seller. It protects them against claims by the buyer in the event of breaches of warranty.

Advantages for sellers

  • Clean exit: if it transpires, after the sale of the company, that the seller has unintentionally provided false information, the buyer can claim compensation from the insurance company.
  • Protection of the sales proceeds: the seller can freely dispose of the sales proceeds after the sale has been completed and does not have to set aside any reserves for potential claims by the buyer.
  • Attractiveness for buyers: Warranty & Indemnity insurance makes a company more attractive to potential buyers. 

Advantages for buyers

  • Increased security: If contractual guarantees or assurances are not honored after the purchase, the buyer can assert any claim for damages directly with the insurance company. 
  • Competitive offer: thanks to the insurance coverage, the buyer has to factor in less risk and can make a more attractive offer. This increases the likelihood that the company will be sold to them and that they will be covered if there are any breaches of warranty after the purchase.
  • Positive for the business relationship: Warranty & Indemnity insurance can prevent future conflicts between buyer and seller.