M&A insurance: so that the warranties in a sale don't end up in court
Warranty and indemnity (W&I) insurance covers the buyer's losses when something the seller stated in the agreement turns out to be untrue. The seller is paid without retentions, and the buyer faces a solvent insurer, not their former partner.
Insurance that replaces the seller as guarantor of the transaction
In every company sale, the seller gives a series of warranties in the agreement (SPA) about the company: its accounts, its taxes, its contracts, its workforce and its regulatory compliance.
If, after completion, a problem emerges that contradicts those warranties, the buyer can claim against the seller. To protect themselves, buyers usually require part of the price to be held back or placed in escrow for years. W&I insurance transfers that risk to an insurer: if a warranty is breached, the policy pays.
The most common is the buy-side policy (buy-side), where the buyer is the insured. There is also the sell-side policy (sell-side), which protects the seller if the buyer brings a claim.
In a nutshell
The seller exits without leaving money held back, and the buyer knows that if a warranty fails, they will be paid by an insurer.
Advantages for both sides of the table
If you are selling
- Clean exit. You receive the price without retentions or long-term escrow deposits.
- Less liability afterwards. Your liability to the buyer can be capped at a very small amount.
- A more attractive offer. In competitive processes, a seller who brings the policy makes bidding easier.
If you are buying
- A solvent guarantor. You claim against an insurer and do not depend on the seller's solvency.
- Relationship preserved. If the sellers stay on as managers, you don't have to claim against them.
- More protection. The policy limit and term can be higher than what the seller would accept.
It protects against what nobody knew at signing
The insurance covers unknown breaches. Anything found in due diligence is negotiated into the price or insured separately.
Covered
Losses from breach of the warranties in the agreement: financial statements, tax and employment liabilities, material contracts, litigation, intellectual property and regulatory compliance, plus the tax indemnity for pre-completion taxes and defence costs.
Not covered
Risks the buyer already knew about, business forecasts, price adjustments, fines that cannot legally be insured and, usually, specific matters such as pollution or pension obligations, which may need a dedicated solution.
When due diligence identifies a specific risk, for example a tax issue, it can be insured with a tax insurance policy.
From first contact to the policy at signing
Deal timetables rule. That is why we get involved early, working with your legal and financial advisers, and approach the Spanish market as well as specialist international insurers and Lloyd’s.
- Transaction analysis. We review the structure, the draft agreement and the scope of the due diligence.
- Indicative proposals. We take the deal to market and compare limits, retentions, exclusions and premium.
- Underwriting. The chosen insurer reviews the documentation and holds a call with the buyer's advisers.
- Signing. The policy is bound at signing or completion of the sale.
A legal and insurance view of the same transaction
If a claim arises after completion, our claims department, supported by the Group's Legal Department, Trebia Abogados, prepares it and pursues it with the insurer so that the policy responds as agreed.
What clients usually ask us about M&A insurance
Who buys the policy, the buyer or the seller?
Either can, but the buy-side policy is the most common. Often it is the seller who proposes it during the sale process, and the cost is shared as negotiated.
How long does it take?
It depends on the deal and the documentation available, but it is usually done within a few weeks, alongside the negotiation of the agreement.
Is due diligence required?
Yes. The insurer relies on the buyer's due diligence to assess the risk; its quality and scope directly affect what the policy covers.
Does it cover issues found in due diligence?
No. Known risks are excluded from W&I. If it is a tax issue or another specific risk, a dedicated policy can be considered.
Is it only for large deals?
It is used mainly in mid-sized and large transactions, but the market increasingly offers solutions for smaller deals. We assess each case.
How much does it cost?
It is a single premium that depends on the limit, the retention, the sector, the country and the quality of the due diligence. We present several comparative proposals.
What about directors who leave the company after the sale?
Their D&O insurance should be reviewed: after a change of control, claims for their past management may be left uncovered unless an extended reporting period (run-off) is purchased.
We will prepare a free review of your transaction
Tell us who you are and one of our specialists will contact you to understand the deal and its timetable. All information is treated in confidence.
- Comparison across more than 40 insurers
- A review of your current policy, if you have one
- A single point of contact who also supports you with claims
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