M&A Insurance Products
Marsh’s Transactional Risk team provide the following services:
- Warranty and indemnity insurance (W&I).
- Tax liability insurance.
- Contingent liability insurance.
- Environmental insurance.
- Title insurance.
These insurance solutions can be used to enhance the allocation of risk between the parties to the transaction; or to allow for specific issues to be ring-fenced from the wider transaction negotiations.
Warranty and Indemnity Insurance
During sales processes it is common for the seller to provide warranties to the buyer on a broad range of matters about the target such as title to shares, property, employment, tax, intellectual property, and other commercial matters. W&I insurance provides protection to either the seller or the buyer against breaches of the warranties and indemnities being given by the seller in the sale and purchase agreement (SPA).
An identified tax issue can often lead to an aborted M&A process with sellers and buyers often disagreeing on the gravity and quantum of the issue. Tax liability insurance is a bespoke insurance policy which effectively ring-fences the tax issue and removes it from the sale agreement negotiation. This means that the seller does not have to give a warranty or a specific indemnity on the tax issue and conversely it can prevent the buyer using the tax issue as a reason to “price-chip”.
In M&A transactions buyers and sellers may take a different view of the potential impact of a contingent liability. Insurance can be used in disputes to ring-fence the issue and provide the target company with certainty as to the cost in the event that the liability crystallises. Issues may range from contractual disputes to the outcome of a piece of litigation.
Whilst W&I insurance policies are usually able to provide cover for matters such as compliance with environmental laws, environmental clean-up costs are often insured by separate environmental policies. A wide range of environmental insurance policies are available. Site specific environmental insurance, for example, is used to provide cover for pollution or environmental damage caused by gradual as well as sudden and accidental pollution events. Cover is available for historic and future conditions.
Title insurance can be used to provide protection against loss resulting from defects or failure of title to the property and/or the shares of the acquired entities that hold the asset. Common to real estate transactions, the extensive cover provided given the comparatively low pricing has led to an increasing uptake in title insurance policies within M&A transactions across Europe.
Title insurance is often used to transfer the title risks away from the SPA liability regime to a third party insurer; or to address risks identified during the due diligence process.