Tax risk insurance claims explained

Warranty and indemnity (‘W&I’) and specific tax risk (‘Specific Risk’) insurance policies have been incepted at an increasing pace in recent years. Policies are now more affordable and broader in scope than ever before. It has become a routine method of managing risk not purely for private equity and corporate M&A but also for intra-group transactions and balance sheet risks. Policy claims relating to tax have a longer lead time and are now becoming more prevalent. Nearly one third of new W&I insurance claims relate to tax making it the most contested area. In order to make a valid claim it is necessary both to prove a ‘loss’ under the contractual warranty and/or indemnity and to confirm that none of the policy exclusions apply. While claims will generally be resolved in good faith negotiations between the insurer and the insured there is potential for...