Transactional Risks Insurance is an umbrella term which encompasses Warranty and Indemnity insurance (“W&I”), Tax Insurance and Contingent Risk Insurance.
- A mechanism for transferring risk by stepping into sellers’ shoes and protecting against loss suffered as a result of a breach of warranty.
- Covers loss or liability arising from unknown or undisclosed matters only.
- Can be purchased by either a buyer or a seller.
- Covers the buyer against the seller’s misrepresentations (both innocent and fraudulent).
- Two key advantages over a seller-side policy:
- The insured can claim directly against the insurer (i.e. without having to pursue recourse against the seller or warrantor(s)); and
- Provides indemnification in respect of the seller’s fraud.
- Offers liability protection to the seller for innocent misrepresentations in M&A transaction documents.
- Designed to respond in the event that the buyer brings a claim for a breach of warranty or a claim under the tax indemnity against the seller.
- Enables a seller to ring-fence the risks associated with the disposal.
- Transfers a known or uncertain tax liability from the insured’s balance sheet to an insurer.
- Provides a quicker and confidential alternative to a tax authority clearance.
- The insurer will indemnify the insured for financial loss arising from a challenge from a tax authority.
- Available both pre or post M&A transaction (or on a standalone basis).
- Covers identified or known contingent risks which are typically the subject of a specific indemnity in an M&A transaction.
- May also be provided for identified “one-off” issues which are not necessarily related to an acquisition or a disposal.