One of the key concerns for insureds when purchasing warranty and indemnity (W&I) insurance will of course be – “how will this work if something goes wrong?” In the event that a warranty breach is discovered, an insured will want to know what to expect from its insurer when making a claim under its W&I policy.1
An insurer’s claims experience and handling process should be a key consideration for an insured when purchasing W&I insurance. Price and scope of coverage are of course important, but as the entire aim of the policy is to provide cover and response in the event of a valid claim, understanding the claims process of an insurer can help an insured make an informed decision, and ensure that any claim runs as smoothly and efficiently as possible.
In order to assist purchasers of W&I insurance, we have detailed below the general structure of a typical claims process. We also provide our top tips to insureds on presenting a claim notice under its policy.
1. An Outline of the Claims Process
The claims process works best when insured, broker and insurer work together collaboratively – making a claim and considering coverage should not be viewed as an adversarial process. At risk of stating the obvious, M&A transactions can be complicated and of high value, and correspondingly W&I claims can be complex. An insured will however likely find that their claim broadly follows the below five steps:
(1) Receipt and Acknowledgment of a Valid Claim Notice
- The insurer will receive the claim notice from the insured or broker and the claim will be allocated to a claims adjuster. The handling process may vary between insurers. At AIG our in-house claims team includes experienced adjusters placed throughout the UK and Europe, who will use their local knowledge and M&A claims expertise, including in the handling of primary policies, to review the claim and take decisions. An insured may find that insurers who do not have local presence, an in-house claims team or have limited claims experience may need to instruct external counsel to handle the claim in its entirety on their behalf.
- The claims adjuster will acknowledge the claim notice and confirm whether or not the notice complies with the time and contents provisions for a claim notice under the terms of the policy.
(2) Review of the Claim and Request for Further Information
- The claims adjuster will begin to review the claim. At AIG, our M&A claims adjusters work in partnership with our underwriting team, in order to quickly obtain a detailed understanding of the transaction and to assist in forming a view on coverage.
- The claims adjuster may require further information from the insured, either in order to be able to determine their views on cover or to consider the value of the loss suffered. The claims handler will work closely with the insured (often in conjunction with the broker) to obtain any further information required.
(3) Third Party Claims
- In the event that the claim notice relates to a third party claim, the insurer will very likely have rights under the policy wording to participate in the defence of such a claim, together with a requirement that settlement of any dispute requires its consent. It will usually also require for the insured to protect the insurer’s own rights against any relevant third party.
(4) Legal Counsel and Accountancy Experts
- The insurer may instruct legal counsel and/or an accountancy expert to assist with its review. Legal and accountancy advice can particularly help an insurer to determine the policy position in complex cases or where measure of damages is complicated.
(5) Coverage Decision and Payment of a Covered Claim
- If the insurer determines that a claim is covered by the policy, it will confirm coverage to the insured and broker. In the event that the claim is not covered or is only partially covered, the insurer will provide full details of its coverage views, and may seek to discuss this further with the insured to confirm its position.
- The insurer may be able to establish quickly that there has been breach of a warranty, but it can take longer to quantify the amount of loss suffered. It is often not a straightforward assessment, and so the insurer will work with instructed experts and the insured to calculate the correct quantum of loss.
- Once quantum is established, the insurer will arrange payment of the covered claim as soon as practicable thereafter.
2. Presenting a Claims Notice – Top Tips from an Insurer
As an insurer, we recognise that our insureds want claims to be resolved expeditiously, and our claims process is designed to confirm our coverage position as quickly as possible. Certainly however, a big help in ensuring that a coverage decision can be made without delay is a well-prepared claim notice. With that in mind, we have set out here our top tips for insureds to consider when bringing a claim under an M&A insurance policy.
It likely goes without saying that, in order for the policy to respond, a claim must be made within the relevant policy period. It is also important to bear in mind however that, even within the policy period, a claim notice should be provided to insurers promptly. A W&I policy wording will likely stipulate that a claim notice should be provided as soon as possible after an insured become aware of the claim, and possibly also within a set number of days.
Remember to check for any provisions detailing how a claim notice should be delivered to insurers. Of course, under the current circumstances and where many of us are working from home, service by post (if this is required) will likely be more difficult. Consider asking your insurer if they will accept service by email instead, this will likely be more convenient for them too. Work together with your insurer to also decide on the best method for delivery of any supporting documents.
(3) Provide Details
Make sure that your claims notice provides a detailed description of the relevant facts and circumstances relating to the claim, and highlights the warranties or indemnities that you consider may have been breached. It may be the case that you do not yet have knowledge of all the relevant information at this stage, but providing an insurer with a detailed account of the available information will not only meet the typical requirements of the policy, but will assist the claims adjuster in limiting their requests for further information required, and allowing them to focus on the key issues to determine coverage.
(4) Relevant Documents
If there are relevant documents relating to a claim (for example court documents, key contracts, tax notices, expert evidence or correspondence), please enclose copies of these documents; a claims handler will likely be able to provide a coverage position much more quickly if they receive this information straightaway. An insurer may still have questions to ask or require further information, but providing anything that you anticipate the insurer will require within your claim notice will likely assist a smooth claims process.
(5) Initial Claims Discussion
If you consider that it would assist to have an initial call to discuss a claim, for example where there is a detailed background, your insurer will often be happy to have such a call, together with your broker and any legal advisers. As above, the claims process should be collaborative, and early communication on any key points or particular issues will assist in resolving a claim.
- AIG has the most experienced claims team in the W&I market, made up of a global network of in-house claims professionals, supported by dedicated legal counsel. We have 17 Major Loss Adjusters specialized in adjusting M&A claims placed in our offices across the UK and Europe, who collectively handle more than 170 open W&I claims, the vast majority of which are primary accounts. ↩