The Dos and Don’ts of Warranty and Indemnity (W&I) Insurance Claims
Claims under W&I policies are on the rise. Reasons for this include an increased volume of placements and fewer exclusions, as well as lower warranty caps and attachment points. Losses under W&I policies can be significant and valuation can be challenging. As such, the initial notice to insurers can be one of the most important stages of making a W&I claim and can set the tone for the rest of the claims process.
Set out below are five key dos and five key don’ts for preparing a claim submission.
Ascertain which of the warranties may have been breached.
Be sure to specify those warranties in the claim notice. The list of warranties does not have to be exhaustive, particularly if the potential breach is still being investigated. However, the wording of the warranties will be a key part of insurers’ consideration of whether the policy is triggered.
Present the claim clearly and concisely whilst including all relevant detail.
Remember that the individual adjusting the claim on behalf of the insurer may not have detailed background knowledge of the deal.
Provide as much documentary evidence as possible in support of the claim.
The most common cause for delay in the claims process is information flow. Anticipate which documents insurers may ask for at this stage, and include all relevant documentation to support your position, including any correspondence or evidence referred to in the claim notice.
Provide a clear explanation of, and some basis for, the asserted loss (if possible at notification stage).
Looking at losses from an accounting or valuation perspective in advance of preparing your claim submission can be invaluable in both guiding your claim and providing a realistic and justifiable loss to your insurer. If a multiple is being asserted, you should be prepared to provide or explain the valuation model used.
Bear in mind any deadlines under your policy for notification of the claim to insurers.
A last minute submission will usually not allow sufficient time for thorough presentation of the claim.
Make piecemeal notifications.
While it may not be possible to provide all information or assess all breaches at the initial notification stage, drip feeding information to insurers will cause frustration and may lead to slower assessment of the claim.
Assert breaches of both insured and uninsured warranties.
While it may be possible to have direct recourse for uninsured warranties against the seller, including these in your claim notice can make it more difficult for insurers to identify what losses will be recoverable under the policy.
Take remedial steps before notifying insurers – if avoidable.
Insurers will want the opportunity to consider the potential breaches, carry out inspections, and/or potentially obtain expert evidence. If steps have already been taken it can be more difficult to ascertain the breach and/or loss.
Settle the claims prior to the notification or without insurers’ consent.
This is likely to be in breach of your policy terms and may release insurers from liability to meet the claim.
Incur costs without seeking prior consent from insurers.
If consent is required under the policy, this should be heeded.