The Inbetweeners: Overview of New Breach Cover in W&I

In the interim period, whilst a target is under agreement to be sold yet there has not been full legal risk transfer to the buyer, there is a balance to be struck between affording buyers the protection they need to proceed with a purchase and allowing the sellers to operate a business in the usual course without overly restrictive constraints post exchange of contracts for sale. Buyers will want the assurance that the position of a target has not changed since the date of signing a transaction or to have recourse in the event that it does. There are various ways, and a combination of some of the below are used, to manage the gap in the interim period:

• Interim period covenants including remedies for breaches of covenants; and
• Repeated warranties or the obligation on the seller to disclose any breaches or potential breaches of warranty during the interim period including remedies granting the buyer termination rights and/or material adverse change clauses.

New Breach Cover is an enhancement sometimes offered under a W&I insurance policy which can help bridge this expectation gap where any of these controls might be lacking. Where an underlying deal has a split sign and completion, it enables a buyer to claim for breaches of insured warranties that (i) that arise and (ii) which the buyer obtains actual knowledge of in the interim period between signing and completion under an SPA.