Much time and effort are often spent in M&A negotiations in terms of what matters are covered by the seller’s representations and warranties (Warranties), and whether and to what extent the reservation is made “to the knowledge of the seller” and “in a material respect”. It is also often a matter of contention as to when a breach of the Warranties can be found, how long it can indemnify the seller (time limit), and how much it can indemnify the seller (maximum amount).

Warranty & indemnity insurance (W&I Insurance) is an insurance product intended to cover any economic loss suffered by a purchaser or a seller resulting from a breach of the Warranties. Generally, there is a (i) seller’s policy whose coverage is like a back-to-back with the seller’s liability under the sale and purchase agreement; and (ii) buyer’s policy whose coverage is broader and extends beyond the limitations of liability provided in the sale and purchase agreement.

The biggest benefit from the seller’s point of view seems to be that it minimizes the risk of being claimed by the purchaser after completion of the transaction and may enable a clean exit from its investment. This is particularly significant when a seller is a PE fund that wishes to distribute exit returns promptly. In some cases, it may not be possible to agree on risk allocation, and negotiations may be disrupted; then W&I Insurance comes into play. Another major advantage is the possibility to obtain a considerable amount of insurance proceeds regardless of the creditworthiness of the seller.

The scope of insurance disclaimers adhere to the principle that ‘known risks’ are excluded and should be covered by a specific indemnity set out in the sale and purchase agreement. The maximum amount of insurance claim depends on the agreement with the insurance company, but it is rare to set 100% of the total purchase price. Generally, the deductible retention and de minimis is about 1.0% and 0.1% of the purchase price, respectively. Basically, the larger the deductible, the smaller the premium.

The period of insurance depends on the agreement with the insurance company. However, for breaches of fundamental Warranties, including tax matters, the period is often around seven years, and for a breach of other Warranties, around two to three years, while taking into account the prescription period in respect of tax liabilities of the relevant jurisdiction.

Arkrapol Pichedvanichok
Senior Partner



Chandler MHM
17th and 36th Floors,
Sathorn Square Office Tower
98 North Sathorn Road, Silom, Bangrak Bangkok 10500, Thailand