Warranty & Indemnity (W&I) Insurance
A Warranty & Indemnity (W&I) insurance provides coverage for financial losses and costs related to a breach of warranties or (general) tax indemnities included in a purchase agreement. The W&I insurance transfers the transactional risks arising from the warranties and tax indemnities to an insurer. A W&I policy is used to ensure that parties who cannot agree on risk allocation and security can still reach a deal. Additionally, the insurance is also deployed as a tactical tool in a competitive acquisition process or when it is important for the relationship between parties to remain good after the acquisition. The buyer is predominantly the insured party under the W&I policy, but the process is often initiated by sellers, as using insurance allows them to achieve a “clean exit.”
Tax Liability Insurance
Tax Liability Insurance provides coverage for financial losses and costs (including interest and penalties) that may arise from a successfully disputed tax position by a tax authority. The Tax Liability insurance transfers tax risks to an insurer, thereby reducing the risk of financial loss that may result from a future tax claim. This may concern specific identified tax risks in the context of an acquisition but also non-transaction-related risks (for example, in a restructuring). Tax Liability insurance is therefore also regularly used as an alternative to a “tax ruling.”
Contingent Legal Risk Insurance
A Contingent Legal Risk Insurance provides coverage for damages and (legal) costs resulting from identified legal risks where the outcome is still uncertain and/or disputed by third parties. The Contingent Legal Risk insurance transfers the specific (legal) risk that could negatively impact an acquisition to an insurer. Such risks outside the context of an acquisition can also be insured, such as existing or potential lawsuits, disputes over (the interpretation of) regulations, contracts, and/or permits. A Contingent Legal Risk insurance can prevent an insured from being exposed to a greater financial risk than they are commercially comfortable with.
Real Estate Risk Insurance
Real Estate Risk Insurance provides coverage for damages and (legal) costs resulting from identified legal risks specifically related to all matters concerning real estate. This can include existing or potential lawsuits regarding (construction) permits and/or zoning plans.
With sound, tailored advice, these insurances are an effective tool for managing legal and tax risks in M&A transactions and beyond. The possibilities for insuring your legal and/or tax risks reach further than you may think. Please feel free to contact us to discuss the options.
