Warranty and indemnity insurance does not end seller risk

What is warranty and indemnity insurance, and how does it differ from R&W insurance?

Warranty and indemnity insurance (W&I) is a policy that pays for losses caused by untrue warranties in a company sale, so the seller’s own liability can fall to a nominal sum except for fraud. In the US the same idea is sold as representations and warranties insurance (R&W insurance, or RWI), and DLA Piper (January 2026) compares the two as “W&I (Europe)” and “RWI (US)”, with different premiums, retentions and exclusions. In a private equity deal the buyer is usually the insured.

A warranty is the seller’s statement of fact about the business, and an indemnity is a promise to pay for a named loss whether or not a warranty is untrue. With a buy-side policy the buyer claims from the insurer. The vast majority of UK and European deals with W&I insurance feature a £1 or nominal liability cap for the sellers, Orrick, a law firm, wrote in March 2026.

In Australia the policy is also called warranty and indemnity insurance, and the cap is negotiated. Lander & Rogers, an Australian law firm, wrote in June 2026 that the policy may be negotiated as “no recourse”, where the insurance covers the full warranty package, or as “limited recourse”, where the seller keeps some liability for gaps in cover. The firm also says up to 60% of deals above $20 million in enterprise value (the firm does not name the currency) are now insured, a statement of its own with no source named.

How does the policy differ between Europe, the US and Australia?

DLA Piper’s January 2026 comparison puts typical European premiums at 0.50 to 1.50 percent of the insured limit and says US premiums may exceed 2.50 to 3.50 percent, and the policies also differ in the treatment of disclosed matters and the number of exclusions, which moves how much risk stays with the seller. The table sets DLA Piper’s two columns beside a June 2026 note by an Australian law firm.

	W&I (Europe), DLA Piper	RWI (US), DLA Piper	Australia, Lander & Rogers (June 2026)
Premium	0.50 to 1.50 percent of the insured limit, typically	May exceed 2.50 to 3.50 percent	0.7% to 1.3% of cover for mid-market share deals; all-in minimum cost about $150,000 to $200,000, including taxes, broker commission and underwriting fee (currency not named)
Retention	0.25 to 0.50 percent of enterprise value; tips to nil	0.40 to 0.50 percent; drops to 0.30 to 0.40 percent after 12 months	1% of enterprise value, as a typical mid-market term
Survival, general and fundamental or tax	Two years; seven years	Three years; six years	Three years general; seven years tax and title (typical mid-market cover periods)
Exclusions	A greater number, standard and deal-specific	Fewer; deal-specific ones less common and narrower	Forward-looking warranties, known matters, consequential loss and fines
Disclosed matters	Data room and buy-side diligence reports deemed disclosed	Not deemed disclosed	Disclosed but unaddressed matters become “known” and fall outside cover
Who starts the policy	In an auction the seller can start it and “staple” it to the sale	Rare; usually buyer-led, though quotes often appear in bids	Not found

Two readings follow, and the second is Unmatched Capital’s inference. Where disclosed matters are treated as known, more of what diligence found sits outside cover, and the buyer can ask the seller to carry it. Where the data room is not deemed disclosed and exclusions are fewer, as DLA Piper describes the US, less is pushed back, although no source we found gives a figure for what a US seller still owes. The seller-side argument below therefore applies most directly to the UK, Europe and Australia, and with less force to a US deal.

Does warranty and indemnity insurance end the seller’s liability after completion?

A buy-side policy ends the seller’s practical liability for the business warranties, because the buyer’s claim goes to the insurer and the seller’s cap is nominal, but at least four exposures can stay with the seller. Capping seller liability at a nominal amount has become standard practice across most markets, Daniel Hassett of Squire Patton Boggs wrote in February 2026.

	Uninsured sale	Sale with a buy-side W&I policy
Buyer claims against	The seller	The insurer
Seller’s cap	Set by the contract; no market average found	£1 or nominal in the UK and Europe (Orrick, March 2026); negotiated as “no recourse” or “limited recourse” in Australia (Lander & Rogers)
Money held back	Holdback or escrow possible	Howden, a broker, says on its Hong Kong site that the policy can be used in place of escrow

Fraud is the first exposure. A CMS guide to real estate deals from 2023 advises that the policy should waive the policyholder’s right to act against the seller except for fraud, or the insurance could undermine the clean break. Howden adds that the insurer gives up subrogation, its right to pursue the seller for what it paid, unless the seller committed fraud. In Australia, Hall & Wilcox wrote in 2019 that liability will not be capped where the vendor has been fraudulent, concealed matters wilfully or been dishonest.

Excluded and disclosed matters stay with the seller too. Matters disclosed during due diligence are excluded from the policy, and protection for them falls to the sellers through direct recourse, a holdback or escrow, or a price reduction (Orrick).

The retention, the first slice of loss the insured bears, is negotiable, and the seller can end up carrying it. A Norton Rose Fulbright guide from April 2015 described one deal with a transaction value of £320,000,000 and a £1,000,000 excess borne by the seller, and another, of £155,000,000, where the buyer bore the whole excess.

The price mechanics are the fourth: leakage and completion adjustments sit outside the policy and are settled between buyer and seller, as the exclusions section below sets out.

Title and capacity warranties can be a fifth. A buyer will often insist that a seller stand behind them without the benefit of a £1 cap, Goodwin, a law firm, wrote in October 2018 in a note on real estate share sales, and insurers sell top-up cover for them. Burges Salmon, writing in July 2026 on the same kind of deal, describes the market standard as the £1 cap falling away only for fraud. Whether they sit inside the cap is therefore a point to check in the draft agreement.

How much does warranty and indemnity insurance cost, and who pays?

A W&I premium often runs from 0.5% to 2% of the amount insured in the UK and Europe, plus premium tax, and the buyer pays it unless the contract moves some of it to the seller. The sources disagree by market and by author, and none of the sources we found states a sample size.

Source	Premium as a share of the limit	What it is
DLA Piper, January 2026	Europe 0.50 to 1.50 percent, typically; US may exceed 2.50 to 3.50 percent	Law firm’s estimate, single-layer primary cover
Orrick, March 2026	0.5% to 2%	Law firm’s estimate, UK and European deals
Lockton, data for 2023-24	0.91% average rate on line; real estate 0.6%, financial services 0.97%	Broker’s own data, UK targets, buy-side policies
Lander & Rogers, June 2026	0.7% to 1.3% of cover	Law firm’s statement, Australian mid-market share deals
Howden, undated	One-off 2% to 3%	Broker’s statement on its Hong Kong site

Rate on line is the premium divided by the limit. UK premium tax is 12%, with an underwriting fee on top (Orrick); no source we found gave a premium tax rate for the US, Australia or other countries. The typical European W&I retention is 0.25 to 0.50 percent of enterprise value (DLA Piper), against an average of 0.27% in 2025 in Aon’s EMEA data, excluding nil-retention policies. On the limit the sources part: Orrick puts the insured amount at generally 20% to 40% of enterprise value, and Howden, on its Hong Kong site, at 10% to 20% of deal value.

The buyer, as the insured, is primarily responsible for the cost, but it is common for the sellers to bear a portion or all of it, often through a deduction from the purchase price at completion. That sentence is Orrick’s and describes the UK and Europe; no source we found says who pays in the US or Australia.

What does warranty and indemnity insurance not cover?

Insurers almost always exclude known matters, forward-looking statements, underfunding of defined benefit pension schemes, transfer pricing and secondary tax liabilities from W&I cover, according to Squire Patton Boggs (February 2026), and Orrick says matters disclosed in due diligence are excluded too. Squire Patton Boggs’s list also covers pollution without a clean phase 1 report, condition of assets without technical due diligence, fines and penalties, and matters included in a purchase price calculation. In Australia, Lander & Rogers lists forward-looking warranties, known matters, consequential loss and fines as general exclusions.

The price mechanics sit outside the policy. Leakage is dealt with by an indemnity from the sellers and price adjustments by a post-completion adjustment based on the completion balance sheet (Orrick), and Squire Patton Boggs names leakage, completion accounts provisions and earn-outs among the matters included in a purchase price calculation.

Exclusions grow where diligence is thin. An insurer will not provide cover for any area where it considers that insufficient diligence has been carried out (Orrick), and DLA Piper’s comparison finds that W&I policies contain more numerous and broader standard and deal-specific exclusions than RWI policies. An exclusion moves the question of who pays: where insurers narrow cover, Hunters Law wrote in April 2026, the risk can shift back onto the seller through specific indemnities, a pricing adjustment or deferred consideration. Each exclusion in a draft policy is therefore a line the buyer may ask the seller to cover.

Tax needs separate care, and this section is general information, not tax advice. In a typical UK tech exit, founders and other key management sellers give the warranties and a tax indemnity to the buyer, and W&I covers claims under the tax indemnity as well as the warranties, subject to the policy’s exclusions (Orrick). In Europe tax carries the longer seven-year survival period that DLA Piper gives to fundamental warranties, against two years for general warranties; DLA Piper gives six years and three years for the US.

The tax exclusions Squire Patton Boggs names are transfer pricing and secondary tax liabilities, and Orrick’s examples of standard exclusions include the same two together with purchase price adjustments. Both lists are examples, not a complete list. The general exclusions for known risks and for matters in the price calculation can reach tax as well, and each policy has its own wording.

Tax is also where claims are most often notified in Europe. Marsh reported that tax breaches were the most frequently notified breach type in Europe in 2025, at 21% of notifications and about 4% of the total paid, and Lockton recorded tax breaches at 32% of UK claims notifications in 2023-24. A seller’s adviser should read the tax indemnity and the exclusions together.

What does a £50 million sale look like in numbers?

In a hypothetical £50 million sale, the seller’s share of the premium and tax is £56,000 and its liability for a covered warranty breach is £1, but a loss of £3,000,000 from an excluded matter still costs the seller £3,000,000. The deal follows European practice, with a nominal seller cap and the data room deemed disclosed, and each input is sourced or labelled as an example.

Item	Input	Basis
Enterprise value	£50,000,000	Example input
Retention	0.25% of enterprise value: £125,000	DLA Piper gives 0.25 to 0.50 percent for Europe (0.40 to 0.50 percent for the US); Aon’s EMEA average was 0.27% in 2025
Policy limit	20% of enterprise value: £10,000,000	Example input, where Orrick’s range (20% to 40%) meets Howden’s (10% to 20%)
Rate on line	1.00%	Example input; Lockton’s 2023-24 average was 0.91%
Premium	£100,000, or 0.2% of enterprise value	Unmatched Capital’s calculation
Premium tax	£12,000 at 12%	Example input at the UK’s 12% rate (Orrick); rates differ by country, and the underwriting fee is left out because no source we found gives an amount
Seller’s half of premium and tax	£56,000	Example input; Orrick says it is common in the UK and Europe for sellers to bear a portion or all
Excluded matter	Loss of £3,000,000 from a matter disclosed in diligence; the buyer takes a specific indemnity from the seller covering it in full	Example input; Orrick and Hunters Law describe the route
Uninsured seller’s cap	10% of enterprise value: £5,000,000	Example input; no source we found gave a market average

Across DLA Piper’s European premium range (0.50 to 1.50 percent) and the limits Orrick and Howden give (10% to 40%), the premium runs from £25,000 to £300,000 before tax and fees, and to £600,000 if Howden’s 3% rate were applied to a 40% limit (Unmatched Capital’s calculation). Some insurers set minimum premiums, such as the £30,000 to £40,000 Goodwin reported in October 2018 for UK real estate deals, so the low end of that range may not be available.

The table below applies two example losses from a covered breach of the accounts warranty, and one loss from the excluded matter. The retention is a deductible, so the policy responds to losses up to £10,125,000.

	Covered breach, loss £3,000,000	Covered breach, loss £14,000,000	Excluded matter, loss £3,000,000
Insurer pays	£2,875,000	£10,000,000	£0
Buyer bears (retention, and loss above the limit)	£125,000	£4,000,000	£0
Seller, with a nominal cap of £1	£1	£1	£3,000,000
Seller, where the seller bears the retention	£125,000	£125,000	£3,000,000
Buyer bears, in that case	£0	£3,875,000	£0
Seller, uninsured with a cap of £5,000,000	£3,000,000	£5,000,000	£3,000,000

The seller’s £1 applies to covered warranty claims and assumes no fraud. The uninsured rows ignore any claims threshold, which would reduce the seller’s figure. The losses, the specific indemnity and the uninsured cap are example inputs.

For covered warranty claims the seller pays £56,000 to replace an exposure that would otherwise run to £5,000,000, and the buyer bears the £125,000 retention and any loss above £10,125,000, having accepted the nominal cap. For the excluded matter the cap does nothing: the seller owes £3,000,000 under the specific indemnity, or £3,056,000 with its share of the premium and tax, against £3,000,000 uninsured (Unmatched Capital’s calculation).

How do warranty and indemnity insurance claims actually go?

Claims under a W&I policy go from the buyer to the insurer, who investigates and settles where appropriate. Notifications rose in 2025 in each of the three 2025 datasets for Europe, the UK and EMEA below; payments rose in the UK and fell in Europe, on Marsh’s figures. The figures come from brokers’ data on their clients’ policies, except Aon’s 2023 cohort rate, which insurers report, so they cover a sample of the market, count notifications as well as payments, and come from firms that sell the product.

Publisher and period	What it reports
Marsh, Europe, 2025	240 new claims, up 103% on 2024, linked to 152 transactions; US$46.9 million paid, 37% less than in 2024
Insurance Business reporting Marsh, UK, 2025	Notifications up 150% to 88; payments over US$105 million, several times the 2024 figure; payment-to-limit ratio on paid policies 36%, from under 5% in 2022
Aon, EMEA, 2025	Notifications up from 70 to 119; 20.3% notification rate for the 2023 cohort (reported by insurers), with about four years of cover left; average payment on what Aon calls R&W policies US$5.2 million, median US$2.1 million
Aon, North America	About 18% of R&W policies bound from 2019 to 2023 have seen at least one claim notification; for claims resolved in 2025, median payment about US$8.2 million and average US$10.4 million; about 51% of R&W claims notified more than 12 months after closing

The EMEA and North American rates cover different cohorts and definitions, so the two cannot be compared like for like. Marsh reports that financial statement breaches were just under 19% of European notifications in 2025 and 64% of the total paid. Squire Patton Boggs describes insurers as keen to show goodwill and to settle where appropriate. Taylor Wessing, describing market practice in the third quarter of 2024, adds that insurers are competing on claims handling and advises buyers to ask whether an insurer has a record of paying material claims.

A notification is not a payment, and no source we found gives a single UK claims frequency. For a seller, whose cap in the UK and Europe is nominal, the data matters mostly as a signal of how insurers will price and what they will exclude. Unmatched Capital’s inference is that rising UK payments make wider exclusions more likely, and Hunters Law says narrower cover can come back to the seller as specific indemnities. Lockton’s 0.91% average rate on line for 2023-24, “a historic low”, points the other way, so Unmatched Capital states the inference as a risk rather than a forecast.

What should a seller still negotiate when the buyer insures the deal?

A seller should negotiate the exclusions, the fraud wording, the premium split and the price mechanics. Unmatched Capital’s position is that the exclusions list sets the seller’s real exposure, since an excluded matter the buyer wants protection for comes back to the seller as a specific indemnity, an escrow or a price cut, as Orrick (March 2026) and Hunters Law (April 2026) describe. In the £50 million example, one excluded matter of £3,000,000 costs the seller £3,000,000 although the cap is nominal, against £56,000 for its share of the premium and tax.

The position holds in every market read, with different weight. Where the data room is deemed disclosed and exclusions are more numerous, as in Europe on DLA Piper’s account, and where Lander & Rogers says disclosed but unaddressed matters become “known” in Australia, more falls back on the seller. In the US, where DLA Piper says the data room and the buyer’s diligence reports are not deemed disclosed and exclusions are fewer, less should come back to the seller on Unmatched Capital’s reading, though no source we found puts a figure on it and the seller still has to check which matters the policy excludes.

The strongest counterargument is that a seller with several bidders can refuse and let each buyer price the gap. That is true, and the cost of an exclusion then falls on the price, so the exclusions list still sets the cost.

Questions to put to a seller’s lawyer before signing:

1. Which exclusions are in the draft policy, and which does the buyer expect the seller to cover by specific indemnity?
2. Does the policy waive subrogation against the seller except for fraud, and does the contract define fraud as the seller’s own?
3. Who bears the retention, and who pays the premium and any premium tax?
4. What are the leakage indemnity and the completion balance sheet adjustment, and are they capped?
5. What does the disclosure letter say, given that disclosed matters are excluded from cover?
6. Do the title and capacity warranties sit inside the nominal cap or outside it?
7. Does the deal follow European practice, with a nominal seller cap, or an Australian negotiation over “no recourse” and “limited recourse”, or a US buyer-led process in which the data room is not deemed disclosed?

None of this is legal or tax advice. For the deal types around it, see the pages on add-on acquisitions and secondary buyouts.