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3 questions to smart minds

Trends in the S&I Insurance Market — Implications for M&A Practice

For this 3 questions to Philip of Brunswick

POELLATH, Munich
Photo: Philip of Brunswick
8. Febru­ary 2022

Warranty and indem­nity insuran­ces have been an inte­gral part of M&A tran­sac­tion prac­tice for many years. In the econo­mic result, the insurance company’s liabi­lity repla­ces the sellers’ own liabi­lity. Howe­ver, from the buyer’s point of view, the complete exclu­sion of the seller’s own liabi­lity is not unproblematic.


For this 3 ques­ti­ons to Phil­ipp von Braun­schweig, lawyer and part­ner at POELLATH, Munich

1. So which party takes out S&I insurance on a transaction?

Typi­cally, S&I insurance is purcha­sed by the buyer, meaning that the insu­rer agrees to indem­nify the buyer for the seller’s warran­ties and indem­nities under theSale and Puchase Agree­ment (SPA). In bidding proces­ses, the S&I insurance solu­tion is usually already prepa­red by the seller. The aim is to exclude the seller’s own liability.

2. What are the main problems here?

From the buyer’s point of view, the complete exclu­sion of the seller’s own liabi­lity is not without problems, because the elimi­na­tion of the liabi­lity risk may have a detri­men­tal effect on the dili­gence of some sellers when issuing guaran­tees and compi­ling the contract attach­ments. After all, the insurance solu­tion has the advan­tage for the buyer that he has a (usually) solvent debtor for his guaran­tee and indem­nity claims and conten­tious nego­tia­ti­ons about purchase price reten­ti­ons, guaran­tees and escrows usually become super­fluous. In the current market envi­ron­ment, which can still be descri­bed as a “seller’s market”, it has in any case become stan­dard prac­tice in bidding proce­du­res for sellers to insist from the outset on full coverage of the tran­sac­tion by S&I insurance exclu­ding their own liability.

3. And where is the deve­lo­p­ment going given the current seller’s market?

Espe­cially recently, it can be obser­ved that sellers some­ti­mes specify narrow loss concepts and very short limi­ta­tion peri­ods, as S&I insu­rers are now able to offer policy enhan­ce­ments for this as well. In this case, the Insu­rer is prepa­red to cover warran­ties even beyond the peri­ods provi­ded for in the SPA (until the expiry of a longer period agreed in the insurance policy) and also to pay for conse­quen­tial dama­ges and loss of profit exclu­ded in the SPA. Howe­ver, these enhan­ce­ments are usually asso­cia­ted with not incon­si­derable premium surch­ar­ges, so that the reason­ab­leness of shor­tening limi­ta­tion peri­ods and narro­wing the defi­ni­tion of damage in the SPA must be weig­hed up by the parties in each indi­vi­dual case.

In summary, it can be said that in the current market envi­ron­ment W&I insurance can more than ever be an inex­pen­sive, highly stan­dar­di­zed and quick solu­tion that greatly shor­tens the previously common lawyer nego­tia­tion batt­les on guaran­tees and liabi­li­ties, mini­mi­zes the seller’s risks and at the same time makes guaran­tees and secu­rity reten­ti­ons super­fluous, since the buyer has a (usually) finan­cially strong debtor in the W&I insu­rer. In addi­tion, strong compe­ti­tion among S&I provi­ders has led to crea­tive solu­ti­ons for the many remai­ning problem areas as well.


About Philip of Brunswick


Part­ner at Poel­lath (www.pplaw.com) and has specia­li­zed in buy-out tran­sac­tions for private equity funds, entre­pre­neurs and invest­ment compa­nies for over 25 years. In the current JUVE hand­book, he is listed for the second time in a row among the 28 “leading advi­sors” for private equity tran­sac­tions in Germany. In addi­tion to his work as a lawyer, he is a prac­tice lectu­rer and Chair­man of the Execu­tive Board of the Master’s program in Busi­ness Law at the Univer­sity of Münster. 

The detailed author arti­cle by Phil­ipp von Braun­schweig in the new FYB 2022 can answer many more ques­ti­ons for you https://www.fyb.de/shop/.

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