How does W&I insurance work?

Generally, two policies are considered for Warranties & Indemnities Insurance.

A buyer-side policy allows the buyer to recover losses from inaccuracies in the warranties and indemnities directly from AIG, without first pursuing recovery from the seller.

A seller-side policy reimburses the seller for losses from warranty and indemnity claims by the buyer.

What does Warranties & Indemnities Insurance cover?

Each policy is tailored to meet the specific needs of the transaction, with coverage designed to:

  • Work with the risk allocation agreed between the buyer and seller in the acquisition contract.
  • Cover first and third-party claims and associated defence costs.

What is the difference between a warranty and an indemnity?

Warranties and Indemnities are a means of reallocating risk between vendors and buyers. Warranties are assurances within the contract from the seller of the business to the buyer. The warranties layout information about the company which may include ownership details pre-sale, assets or financial accounts.

In contrast, an indemnity is a contractual promise to reimburse the other for any specific liability that arises. The purpose of an indemnity is to provide compensation in respect of a specific risk. Indemnities can be used in circumstances where a breach of warranty may not necessarily give rise to a claim. In general, warranties protect against the unknown and indemnities allocate risk in respect of a known liability.

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