Our DisclosureGap® Warranty & Indemnity Insurance policies provide insurance for loss incurred as a result of the breach or inaccuracy of warranties and indemnities made in a transaction agreement.
Multi-year (single aggregate) policies with policy terms of up to:
To cover claims brought by the buyer for breaches of warranties and indemnities
To cover claims brought by the seller for breaches of warranties and indemnities
To cover claims brought by the buyer for breaches of representations and warranties
The buyer in a transaction requires that the indemnity given by the seller apply to breaches or inaccuracies of warranties that are discovered for up to thirty six months after closing. The seller is only prepared to offer an indemnity for breaches or inaccuracies discovered up to the twelve month anniversary of closing. A DisclosureGap® policy may be issued to cover losses resulting from claims first discovered by the buyer after the twelve month anniversary and before the thirty six month anniversary of closing.
The final deal point in a sale agreement is the quantum of the amount of the indemnity (or "indemnity cap") that the seller will provide to the buyer for losses suffered as a result of the inaccuracy or breaches of warranties. The buyer requires an indemnity cap of €50,000,000 (or 25 percent of the transaction consideration). The seller is only willing to provide an indemnity cap of €20,000,000 (or 10 percent of the transaction consideration). A DisclosureGap® policy with a €30,000,000 policy limit may be issued to respond to losses that exceed €20,000,000.
A key deal point in a sale agreement is the wording of the warranties relating to intellectual property. The buyer's board of directors requires its standard wording for any acquisition where the intellectual property of the target is a critical part of the business. The seller is unwilling to agree to the requested wording. A DisclosureGap® policy may be issued with coverage provided to the buyer for any losses they incur as a result of the inaccuracy or breach of the warranties worded in the manner required by their board.
The seller has agreed to the scope, duration and quantum of the indemnity for losses incurred by the buyer as a result of the inaccuracy or breach of seller’s warranties. The seller has suffered operating losses and is highly leveraged and will be using the proceeds from the sale to pay off most of its bank debt causing the buyer to be concerned about the seller's ability to perform under the indemnity. A DisclosureGap® policy may be issued to respond to losses covered under the indemnity in the event that the seller is not financially able to meet its obligations.
The target company in a transaction is a publicly traded company. While the parties have agreed to the scope of the seller's warranties, they do not survive closing as the proceeds of the transaction will be distributed to the shareholders of the target leaving the buyer with no recourse. A DisclosureGap® policy may be issued to respond to losses incurred by the buyer for breaches of the seller's warranties in excess of an agreed retention.
The target company in a transaction is the final portfolio investment of a private equity fund that will make a final distribution and liquidate after the transaction closes. While the buyer has agreed to the scope of the warranties, the seller is not willing to provide an indemnity to support the seller's warranties as this would prevent distribution of the fund's assets to its partners. A DisclosureGap® policy may be issued to respond to losses incurred by the buyer for breaches of the seller's warranties in excess of an agreed retention.
The buyer in a transaction is a private equity fund. As such, most of the transaction consideration will be borrowed from a consortium of lenders. While the buyer is satisfied with the scope, quantum and duration of the indemnity given by the seller to respond to breaches of the seller's warranties, the credit committee of the lead lender requires that the quantum of the indemnity be increased by 20% above the agreed amount. A DisclosureGap® policy may be issued to respond to losses incurred by the buyer for breaches of the seller's warranties in excess of an agreed retention.
The seller of a business is the foreclosing bank. As it has not been involved in the management of the business, it is only willing to sell on an "as-is where-is basis" and is not willing to provide any warranties. The buyer is a group of private equity funds that have completed significant due diligence on the business being purchased. While the buyer believes that it has identified all of the risks, there are certain facts about the business that would normally be addressed by warranties (and supporting indemnities given by the seller). If any of these facts were materially inaccurate, the impact on the target business could be significant. The buyer may work with underwriters to develop a DisclosureGap® policy that will respond to losses it incurs as the result of identified "synthetic" warranties being inaccurate or breached.
The non-management sellers of a closely-held business have been inactive in the target business for many years and are unwilling to bear their proportionate liability under the indemnity that the buyer has required as respects losses resulting from the inaccuracy or breach of any of the seller's warranties. A DisclosureGap® policy may be issued to cover the non-management sellers' proportionate liability under the indemnity that the buyer has required.
The shareholders of a privately held company have sold off all of their key assets and have voted to liquidate the company. The only remaining potential liability of the company is the indemnity provided to the buyer under a sale agreement that closed several years ago to cover losses incurred as a result of breaches of the seller's warranties when selling its largest subsidiary. The company's board is not prepared to authorize a final distribution until this potential liability is addressed. A DisclosureGap® policy may be issued to cover the company's liability under the indemnity.
While a seed investor has been provided with warranties and indmenities made by the entity about the intellectual property that is key to the venture, the start-up will not, practically speaking, have any assets to indemnify the investor if any losses are incurred as a result of any breaches of such representations and warranties. A DisclosureGap® policy may be issued to indemnify the investor for losses incurred as a result of the inaccuracy or breach of the intellectual property warranties and indemnities.
If you would like to learn more about our DisclosureGap® Warranty & Indemnity Insurance:
When a DisclosureGap® policy is purchased in the context of a M&A transaction, the insured can be either the seller or the buyer (or where there are multiple sellers or buyers, a sub-set of the sellers or buyers). For example, one of the sellers in a transaction may be unable to retain any trailing liabilities associated with a transaction because it will liquidate following the close of the transaction. In other situations, the risk appetite of one of the sellers or buyers may differ from that of its co-sellers or buyers. When a DisclosureGap® policy is purchased in the context of a licensing transaction, the insured can be either the licensee or the licensor. In addition, sometimes financiers or lenders to a transaction are the driving force behind coverage. In such situations, these parties can be named as loss-payees under the insurance.
Yes. As the warranties and indemnities given to the buyer of a publicly-traded company do not survive closing of the transaction and the proceeds are distributed to the shareholders, DisclosureGap® is an ideal risk-mitigation solution for the buyer of a publicly traded company.
No. DisclosureGap® Warranties & Indemnities Insurance is designed to cover an insured for unknown breaches of warranties and indemnities after due diligence has been conducted. While not designed to be a substitute for due diligence, it can be used when the buyer has conducted due diligence but nevertheless requires additional protection. An example of this may be where the target company is a foreign jurisdiction and while thorough due diligence has been conducted, the buyer has a concern that there are risks of doing business in that jurisdiction that may not have been identified.
Yes. The accuracy of the intellectual property warranties and indemnities can be critical to the value of the asset being licensed or purchased and is a perfect example of the type of warranties and indemnities covered by Ambridge.
Yes. Tailoring coverage to respond to only a limited number of warranties and indemnities is often a more cost-efficient way of providing the insurance for those areas where the insured requires additional security.
No. While a DisclosureGap® policy is not designed to provide coverage for inaccuracies of breaches of warranties and indemnities that are known to the insured(s) at the time the policy is purchased, Ambridge’s contingency insurance products can be endorsed to our DisclosureGap® policy to provide you with coverage for many identified exposures. Please bring these actual or potential exposures to our attention during the underwriting process so that we can advise you if coverage can be provided.
Although there is some over-lap between coverage under a DisclosureGap® policy and “run-off” policies, there are significant differences. Without enumerating all of these differences (and given that the scope of “run-off” coverage can vary widely based upon the policy wording used), some common differences between a DisclosureGap® policy and “run-off” are:
1) The identity of the insureds. Insureds (or insured capacity) under a Run-Off policy do not include shareholders of the target that ultimately have the responsibility for the indemnification obligation that responds in the event of the breach of or inaccuracy in a warranty. In fact, the directors and officers of the target are rarely signatories to, or parties to, a transaction agreement. A DisclosureGap® policy is more accurately tailored to include the relevant buyer or seller parties as insureds;
2) While under a Run-Off policy, liability of the relevant insured must be demonstrated before there can be a financial recovery from that insured. Damages under a transaction agreement are, with a few exceptions, generally contractually determined under the terms of the indemnification obligation. Many Run-Off policies contain contractual exclusions; and
3) Some exclusions, such as the bodily injury/property damage exclusion and the contractual exclusion mentioned in (2) above, eliminate coverage for loss incurred by an insured as a result of the breach of or inaccuracy in many warranties and indemnities.
Generally we can provide preliminary terms within 24 hours. Completion of full underwriting is dependent on how quickly detailed information is provided to Ambridge. Ambridge frequently can offer bindable terms within several days after receipt of the initial submission.
Please provide the following information to receive preliminary terms:
1) Copy of latest Purchase and Sale Agreement together with all available Schedules and Exhibits;
2) If available, a copy of the offering memorandum or circular distributed to potential bidders, which describes the company and its operations together for potential bidders;
3) A list of shareholders of the target company together with percentage of shares held; and
4) Copy of most recent audited financial statements for the target company.