Warranties & Indemnities Risk
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the most significant case in Australia to date
We acted in the most significant case in Australia to date involving Warranty & Indemnity Insurance (‘W&I Insurance’): Asahi Holdings (Australia) Pty Ltd v Pacific Equity Partners Pty Ltd (No 2) (2014) 312 ALR 403.
W&I Insurance is a rapidly growing area and Australia is a significant market. It is common for mergers and acquisitions in Australia to involve W&I Insurance and there is an increasing demand for cover to be tailored to suit particular transactions. While insurance of this type can limit risks for both buyers and sellers, it does not provide protection against all loss, and it does not remove the need for a comprehensive due diligence process to be undertaken. The terms of cover under any W&I policy need to be considered carefully in any transaction.
We have an appreciation of the specialised nature and particular features of W&I Insurance. As was demonstrated in the Asahi case, this is an area of insurance in which the insurer’s interests are not necessarily aligned with those of the insured. This gives rise to legal and practical complications. Cover is usually subject to exclusions, in particular for fraud and (in the case of listed companies) compliance with listing rules, and the operation of such terms largely remains to be tested in an Australian context.
Our capability to advise in matters involving W&I cover is derived from our understanding of the product, our expertise in insurance law and our knowledge of market practices in Australia.
Complex coverage issues
We are able to advise on complex coverage issues arising in this area, including issues such as:
- Structural issues about the nature of the cover. For example, who might appropriately be considered the insured under a W&I policy, i.e. the seller or the buyer? What is the nature of the cover provided by the policy, i.e. first party or third party? If the insured is the seller, cover is probably of a third party nature. If the insured is the buyer, the policy probably provides a form of first party cover
- The extent to which the availability of cover serves to defeat extra-contractual claims against the seller, for example claims for misleading or deceptive conduct in respect of seller warranties
- The extent to which the availability of cover serves to defeat claims against non-contracting parties, such as directors or officers of the seller who may have given warranties
Complex coverage issues
- The extent to which cover is available for alleged misrepresentations as to future matters, as opposed to misrepresentations about past matters (for example, regarding past financial performance)
- The applicability of non-disclosure principles and insurers’ rights to cancel or avoid cover based on the knowledge of the insured (where the seller is the insured)
- The extent to which W&I Insurance typically responds in the event of a significant post-contractual dispute involving a large merger or acquisition
- The applicability of specific exclusions, for example in respect of known risks, issues identified during due diligence, consequential loss, fines and punitive damages
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