A warranty & indemnity (W&I) insurance covers damage resulting from breaches of warranties given in the SPA by the seller. W&I insurance has been around for many years, but it has become increasingly popular in the last few years. According to Lockton, “recent statistics suggest that over 50% of corporate real estate transactions in Europe now use W&I insurance, a large driver for this has been the adoption of a EUR 1 cap on sellers’ liability under the SPA.”
The seller has a clean exit at a fixed cost. The purchaser, in turn, is not faced with the potential risk of the seller's insolvency (hence, avoiding the need for retentions or escrows). It also offers a solution, among others, in case (i) the seller is unable to give typical seller’s warranties, (ii) a significant monetary cap under the SPA must be bridged or (iii) the enforcement of a claim would prove to be challenging (e.g., involving multiple private sellers, distressed sale, foreign jurisdictions, etc.).
Sell-side or buy-side
Draft with care
Knowledge of the parties