Two Contracts, One Deal: Why the W&I Policy Matters as Much as the SPA

6 min 26 sec August 19, 2026 (Edited)

Written by

Stavros Marcou

Of Counsel

s.marcou@tamimi.com

Pallavi Satpute

Senior Associate

p.satpute@tamimi.com View LinkedIn Profile

Warranty and indemnity (W&I) insurance has become an established feature of sophisticated private M&A involving UAE and KSA targets, particularly in private equity exits, competitive auction processes, and management rollover transactions. It shapes transaction structure from the outset, long before the sale and purchase agreement (SPA) is agreed.

The conventional view — that the SPA determines the parties’ rights and the policy simply places a creditworthy insurer behind the sellers’ obligations — is incomplete. The SPA allocates contractual risk between buyer and seller; the policy determines how much of that risk is transferred to an insurer and on what terms. As a separately negotiated contract, the policy may refine or enhance the buyer’s practical recovery position and influence the seller’s residual liability.

Successful transactions depend on developing the two instruments as a coherent framework. If the policy is considered only after the SPA is substantially agreed, opportunities to improve coverage may be lost and unintended gaps may emerge.

Why W&I matters to transaction counsel

W&I affects both the substance and conduct of an M&A transaction. There are three principal consequences for transaction counsel.

1. SPA negotiations must be undertaken with an eye on insurability. A warranty may be commercially acceptable between buyer and seller, but prove difficult to insure because it is forward looking, insufficiently precise, or unsupported by due Conversely, a buyer may retain a warranty despite limited prospective coverage because the warranty compels the seller to investigate and disclose a particular risk.
2. Brokers and underwriters should be engaged early enough for due diligence, underwriting questions, and policy negotiations to proceed alongside the SPA process, thereby reducing the risk of delay to the transaction timetable.
3. Most importantly, counsel should negotiate the W&I policy by treating the policy’s definitions, exclusions, cover spreadsheet, and claims provisions with the same care as that applied to the SPA

The commercial impact extends beyond coverage. Omer Mahdi, Head of M&A and Transaction Solutions for the Middle East and Africa at Aon, explains below how W&I can change the tenor of SPA negotiations.

“By transferring the real economic risk on warranties and limitations of liability to the insurer, W&I can turn some of the most adversarial parts of the SPA into a more constructive exercise. Parties become less entrenched in zero sum arguments over caps, baskets and survival periods, and counsel can focus instead on how the risk is best articulated, diligenced and allocated for the purposes of the policy. Once sellers understand that their residual liability is materially limited, they are typically more willing to agree a comprehensive warranty suite and engage sensibly on buyer friendly drafting. Properly structured, W&I does not just change the claims path; it often smooths the path to agreement on the SPA’s most contentious provisions.”

Interplay between the SPA and the W&I policy

 Complete alignment between the SPA and the policy is not always possible or desirable. The objective is not to achieve identical wording, but to ensure that any differences are deliberate, understood, and consistent with the parties’ commercial allocation of risk.

Due diligence drives W&I coverage

From an underwriting perspective, thorough and well-documented diligence remains the foundation of effective W&I coverage. The policy is intended to insure unknown risks, rather than to replace the buyer’s investigation of the target business.

 Sami Osman, Head of M&A for the Middle East at RiskPoint, explains: “The best W&I coverage can be achieved via thorough due diligence. W&I insurance is designed to protect a Buyer against unknown warranty breaches, rather than a substitute for understanding the target business. Where the Buyer has tested management’s assumptions, reviewed underlying evidence and clearly explained the scope, findings and residual uncertainties, the insurer is better able to assess the risk and offer a more comprehensive coverage position. Conversely, material gaps in diligence will often translate into W&I exclusions or limitations.”

“The benefit of a good diligence process extends beyond W&I coverage: it gives the Buyer a practical map of the Target’s contracts, systems, people and operational dependencies and how these can be integrated into the Buyer’s business. Multiple studies have stated that integration is one of the most difficult stages of M&A, so those due diligence findings can be essential in ensuring a smooth integration process post-completion,” said Osman.

Warranty drafting

Warranty drafting should also be approached through the lens of insurability. Broad or forward-looking warranties, or warranties unsupported by diligence, may be excluded or qualified by the insurer.

Equally important is the cover spreadsheet, which should always be reviewed alongside the operative policy wording and exclusion schedule, as a warranty recorded as ‘covered’ may still be affected by policy exclusions.

Disclosure, knowledge, and loss

The SPA and policy need not adopt identical approaches to disclosure, buyer knowledge, or recoverable loss. A buyer may deliberately retain a warranty in the SPA to obtain disclosure even where the insurer declines cover. Equally, policy enhancements may broaden recovery beyond the SPA by modifying knowledge qualifiers or restoring excluded heads of loss.

Tax covenant

Tax is another common area of divergence. A comprehensive SPA tax covenant does not necessarily translate into comprehensive insurance. Underwriters frequently exclude identified transfer pricing, VAT, customs, audit, or transaction-structure risks, requiring those exposures to be addressed through specific indemnities or separate contingent tax insurance.

 Claims procedure

 The practical significance of the W&I policy becomes most apparent after completion. In addition to the SPA claims regime, the policy introduces its own requirements relating to notification, preservation of evidence, access to information, mitigation, and the conduct of third-party claims. These procedures should be considered alongside the SPA so that compliance with one document does not inadvertently prejudice recovery under the other.

As Munal Mehta, Partner at HWF, observes: “The true test of any insurance product is not when it is purchased, but when a claim is made. The MEA market is moving beyond adoption and into validation. As claims are increasingly notified, assessed and settled, investors are seeing first-hand that W&I insurance is not simply a transaction enabler but a proven source of protection when unexpected liabilities emerge. Every successful claim demonstrates that W&I insurance delivers meaningful protection when unforeseen issues arise, supporting the continued growth and maturity of the region’s transactional risk market.”

Ultimately, a buyer’s ability to establish a covered breach, quantify its insured loss and comply with the claims procedure will determine whether the intended risk transfer is realised.

Walter Miles, Head of Transactional Risk for Middle East & Africa at Marsh, captures both the value and the risk created by the policy’s separate contractual status.

“The policy exists as a separate contract from the SPA and this discreteness brings value in itself. Although the policy should dovetail closely with the commercial bargain agreed between buyer and seller, it can selectively enhance that bargain without rewriting it — for example by supporting limited or nil seller recourse, an outcome seen in 83% of GCC transactions advised on by Marsh for some or all warranties, while preserving comprehensive buyer protection. That additional flexibility often helps unlock negotiations that might otherwise stall.”

“Equally important is the post-completion dynamic. Buyers can pursue claims against an insurer rather than counterparties with whom they have ongoing commercial relationships. In practice, this matters: almost one in five W&I policies gives rise to a claim. At the same time, sellers benefit from a cleaner exit with reduced contingent liability. But beware — the policy’s separate contractual nature also makes careful alignment with the SPA essential to avoid unintended gaps in cover,” said Miles.