Warranty & Indemnity insurance: How easy is it to make a successful claim?

At a glance

• Warranty & indemnity insurance (W&I insurance) remains an important risk management tool in M&A transactions.
• However, the Courts have shown that obtaining recovery under a policy can be more difficult than many buyers expect.
• Buyers must establish a breach of warranty, avoid knowledge exclusions and prove that they have suffered a recoverable loss.
• W&I insurance can provide valuable protection but it is not a substitute for thorough due diligence.

Why is W&I insurance growing in popularity?

W&I insurance is designed to cover against financial loss that may arise from a breach of warranty in a share purchase agreement or other transaction document.  Rather than pursuing the seller for breach of warranty, the buyer can seek recovery directly from the insurer.

The need for W&I insurance often arises where there is a disconnect between the level of contractual protection sought by the buyer and the level of protection the seller is willing or able to provide. Sellers, whether they are investors or management, may demand a clean exit with minimal post completion warranty claim exposure. At the same time buyers still need contractual protection around the purchase price being paid.  W&I insurance can bridge that gap by transferring certain risks to an insurer.

The most common form of W&I policies now on corporate transactions are "buy-side" policies that are often viewed as a "deal enabler" that can facilitate negotiations, reduce the need for escrow arrangements and provide greater certainty for both parties.

But what happens when a warranty issue emerges post completion - does the policy deliver the protection buyers expect?  The two cases outlined below suggest that obtaining cover is one thing but successfully recovering under that policy is not always straightforward.

Relevant case law

In Finsbury Food Group plc v Axis Corporate Capital UK Ltd [2023] EWHC 1599 (Comm) (Finsbury), the High Court rejected Finsbury's £3 million claim under a buyer side W&I policy following its acquisition of gluten-free bakery Ultrapharm.  Finsbury alleged that it had overpaid for the business because warranties relating to trading performance and profitability were inaccurate.  However, the Court found that there had been no breach of warranty because the alleged recipe changes and price reductions had occurred before the relevant accounts date and were either part of the ordinary course of business or did not amount to the level of adverse change required by the warranties.  

The claim ultimately failed for three key reasons:

• The warranties had not been breached.
• Members of the buyer's deal team had actual knowledge of the relevant circumstances.
• Finsbury could not establish that it had suffered a recoverable loss because it would have proceeded with the acquisition and paid the same purchase price regardless.

The Court also criticised the buyer's relatively light touch approach to due diligence, reinforcing the principle that warranties are not a substitute for investigating the target business properly. The decision highlights that a successful W&I claim requires a clear breach, no prior knowledge and demonstrable loss.

In Project Angel Bidco Ltd v Axis Managing Agency Ltd and others [2024] (Project Angel), the Court of Appeal considered the position where a warranty was identified as "covered" in a cover schedule attached to a W&I policy, whilst losses arising from a specific liability which breached that warranty were expressly excluded under provisions contained in the main body of the policy.  By a majority, the Court of Appeal dismissed the insured's appeal and upheld the High Court's decision in favour of the underwriters.  The Court found that the policy wording did not contain any obvious error. In particular, the fact that the underwriters could provide a coherent and rational explanation for why the exclusion had been drafted in that way strongly suggested that no clear drafting mistake had been made.  The decision demonstrates that the Courts are reluctant to rewrite commercial contracts where insurers can point to a rational commercial explanation for disputed wording.  The case also highlights the importance of carefully reviewing the general W&I policy exclusions in the body of the policy and ensuring they align with the specific warranties intended to be covered.

Practical tips

While W&I insurance remains a powerful tool for allocating risk in M&A transactions, recovery under a policy is far from automatic.  Our practical tips are:

1. Warranty wording matters: A successful W&I claim depends on proving an actual breach of the warranties as drafted in the transaction document.  Courts will apply ordinary principles of contractual interpretation and will not extend warranty protections beyond their agreed wording.
2. Causation and loss must be proven: Even where a breach exists, recovery may fail if the buyer would have completed the transaction on the same terms regardless.
3. Actual knowledge is usually fatal to a claim: Where a buyer knew of the relevant circumstances and appreciated their significance before completion, a warranty claim may be barred under a knowledge exclusion (usually in both the underlying transaction document and the W&I policy).
4. W&I insurance is not a substitute for due diligence: The Finsbury judgment reinforces the need for thorough investigation of the target business and demonstrates that courts will not use warranty protections to remedy shortcomings in the buyer’s diligence process.  Also, W&I providers will usually not be comfortable providing cover for areas where due diligence has not been completed.
5. Preserve contemporaneous valuation documents: Board papers, financial models and approval records are likely to be decisive on causation and quantum if a claim arises.
6. Even relatively minor inconsistencies can undermine a claim: Courts are unlikely to correct drafting errors unless both the mistake and the intended correction are obvious.  For that reason, the terms of the W&I policy should be negotiated and considered in detail alongside the negotiation of warranties.  If there are concerns about potential gaps in the policy, then separate specific contractual protection should be considered.  Early input can help identify potential evidential gaps, clarify ambiguous drafting and reduce the likelihood of costly coverage disputes after completion.

If you would like to discuss any of the issues raised in this article or require support with a W&I insurance claim, please get in touch.

Authors: Craig Thompson and Ceri Harland

Contributor: Shelley Bishop

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2026. Specific advice should be sought for specific cases. For more information see our terms & conditions.