Claims
Claims are the most important aspect of insurance. Without being able to claim under an insurance policy, the policy becomes meaningless. In its infancy, many people questioned the W&I insurance market’s effectiveness in paying claims but in more recent times there have been some considerable claims paid therefore proving that W&I insurance policies are an effective way of covering M&A related liabilities.
The claims process is very straightforward because the W&I insurance policy will be clear on the requirements from the insured when submitting a claim. Generally, all claims start with a claim notice. This is a written letter to the insurer to notify them of a likely claim. This letter will set out the issue that has been identified by the insured and the circumstances that means they anticipate having to make a claim.
A claim notice is the starting point of every claim but it does not necessarily mean that the issue will result in a claim under the policy. Sometimes an insured might have other means to rectify the issue. For example, if the seller has provided their own recourse under the acquisition agreement, the insured might find it easier to recover the cost of the issue from the sellers rather than the W&I policy.
If the insured does want to make a claim under the W&I policy then they need to send to the insurer an information pack outlining their claim including how much money they are claiming for. They also need to provide any supporting evidence which, for example, could be email correspondence with the seller, advice from the insured’s legal counsel or an auditors report.
The insurer is required to acknowledge receipt of the claim notice within a certain time frame which will be set out in the W&I policy. The insurer is also likely to engage their own legal counsel in order to review the claim and, if possible, fight it. This can mean that the claim process can take many weeks or even months to conclude and will often involve a back-and-forth with the insurer and the insured in order to exchange documents, information and opinions.
It is no surprise then that a key selling point for W&I insurers is how they deal with claims. Insurers that hand-off claims to their advisors or even separate insurance claim specialists are not going to be popular because the insurer will have little input in the claim process and there is a greater incentive for the claim process to be drawn out and hostile. Much more favourable are insurers who have their own internal claims team who can deal with each claim they receive quickly and efficiently. Insurers who communicate clearly and concertedly with the insured are much more likely to offer better customer service and therefore a better reputation.
A successful claim will result in the W&I insurers paying out to the insured. They might not pay the whole amount originally claimed for but the final amount will correspond with the amount the insured has lost. A successful claim will also potentially alter the W&I insurance policy for future claims. For example, if the retention is a tipping or dropping retention, the payment of one claim will likely mean this retention changes for all future claims.
