Asset and Liability Warranty (GAP) and W&I Insurance: Protecting the Buyer After Closing

The clause that protects the buyer after closing

Introduction: the sale is signed, but the seller's risk does not end at closing

The price is agreed, the agreement signed, the funds transferred. For many owners, the sale stops there. That is a mistake. For months, sometimes years after closing, the seller remains liable for what they declared about their company, and a liability surfacing from the past can come back to hit them in the face. This is precisely the purpose of the asset and liability warranty, the clause that organises what the seller owes the buyer once the deal is done.

« Contracts lawfully formed take the place of law for those who made them. », French Civil Code, article 1103.

Three factors make the topic central in 2026. First, the mergers and acquisitions market is rebounding strongly, and every additional deal is a warranty agreement to be negotiated. Second, warranty insurance, the Warranty and Indemnity policy, has become mainstream in the mid-market: according to the CMS European M&A Study 2025, its use keeps rising, driven by falling premiums. Third, in a climate where buyers negotiate longer warranty periods, the poorly advised seller signs an exposure they have neither quantified nor secured. This article defines the warranty and W&I insurance, traces their origin, explains why and how to negotiate them, when to use them, whom to call, their advantages and limits, five mistakes to avoid, two quantified France and Switzerland cases and ten key questions.

Secure your sale with a negotiated warranty, not one imposed on you

Before signing, have your asset and liability warranty quantified and negotiated: cap, threshold, duration, escrow, and the opportunity of W&I insurance. This is where part of the price is won or lost. Book thirty minutes with Hectelion to frame your file, and rely on our financial due diligence to objectify the risks that feed the clause.

Acontos: estimate your company's value online for free

Before getting into the detail of the warranty, note that Hectelion has developed Acontos, an online tool for audit, due diligence and business valuation, powered by Claude Sonnet 5 artificial intelligence by Anthropic and calibrated by Hectelion's methodology. From your accounts, it produces a first estimate of the value of your shares in a few minutes, free of charge and without keeping any document.

Launch the valuation simulator to get a ballpark figure, then read on to understand how an asset and liability warranty protects that value after closing.

Definition: what is the asset and liability warranty and W&I insurance?

The asset and liability warranty, or GAP in its French acronym, is the clause of the sale agreement by which the seller warrants to the buyer the accuracy of a set of representations about the company, accounts, tax, contracts, litigation, employment, environment, and undertakes to indemnify the buyer for any liability whose origin predates closing but which surfaces afterwards. It turns trust into a quantifiable obligation: if an unprovisioned tax debt appears, if an employment dispute materialises, the buyer can call the warranty and be indemnified within the negotiated limits.

W&I insurance, for Warranty and Indemnity, is a policy that takes over from this warranty. Instead of calling on the seller, the insured buyer turns to the insurer to be indemnified for a breach of the representations. It gives the seller a clean exit, a clean break with no residual exposure, and the buyer a solvent counterparty, the insurer, rather than a seller who is sometimes untraceable years later. The warranty and W&I do not oppose each other: the policy sits alongside the clause, it does not replace it.

Origin: from statutory warranty to contractual representations and transaction insurance

Sale law already offers statutory warranties, against eviction and against hidden defects, but they are too narrow for a company sale: they cover neither a tax reassessment, nor an employment liability, nor an inherited commercial dispute. Practice therefore built, through contract, a far broader regime, the contractual asset and liability warranty, whose binding force flows from the very principle of the contract. In France as in Switzerland, the warranty is today a standard of any serious sale of an unlisted company.

Warranty insurance arrived later, first on large private equity transactions, where selling funds wanted to distribute the sale proceeds without keeping any contingent liability. It then reached the mid-market, driven by competition between insurers and falling premiums. The CMS European M&A Study 2025, which analyses 582 transactions across 27 European jurisdictions, confirms this progression, particularly marked in German-speaking regions. The warranty falls under the France and Switzerland law of the sale; the W&I policy, under an insurance market that has become mature.

Why negotiate an asset and liability warranty

First, to protect the buyer from a past they did not create. Due diligence reduces the unknown, it does not remove it, and the warranty covers what was not detected. Second, to secure the price: a buyer reassured by a solid warranty pays more than a buyer who must provision the risk in their offer. Third, to allocate risks clearly between the parties, rather than letting a grey area turn into post-closing litigation.

Fourth, for the seller, to bound their exposure: a well-drafted warranty caps what they may owe, fixes a duration and excludes what was brought to the buyer's knowledge. Fifth, to open the way to a clean exit through W&I insurance, decisive when the seller is a fund that must close, an owner retiring, or a family wishing to turn the page. The warranty is therefore not a constraint imposed on the seller, it is a negotiation tool which, well handled, protects both camps.

How an asset and liability warranty is built

The warranty is built around a few parameters, each fiercely negotiated. The representations first, the scope of what the seller asserts about the company, whose breadth conditions the whole protection. The trigger threshold next, or de minimis and basket: below a certain amount per claim, then below a cumulative amount, no indemnification is due, in order to rule out low-stakes disputes. The cap bounds the total amount the seller may be required to pay, often a percentage of the price, higher for fundamental and tax warranties.

The duration sets the window during which the buyer can call the warranty: of the order of twelve to twenty-four months for general warranties, aligned with limitation periods for tax and employment, longer for the environment. Then comes securing payment: an escrow holds a fraction of the price in a blocked account, released in tranches, or a bank guarantee payable on first demand, or else a W&I policy that shifts the risk to the insurer. Each cursor moves value from one camp to the other, which makes the negotiation as decisive as that of the price and its adjustment mechanism.

The disclosure schedule: what is disclosed is not covered

A warranty is never read without its disclosure schedule. This document, sometimes called the schedule of exceptions or disclosure letter, lists everything the seller brings to the buyer's knowledge alongside their representations: an ongoing dispute, a tax audit, a change-of-control clause, a threatened contract. The rule is simple and formidable: what is properly disclosed can no longer be claimed. Disclosure does not rewrite the representations, it subtracts precise risks from them, which shift from the seller to the buyer. This is where the real scope of the warranty is decided, far more than in the wording of the representations themselves.

Two levels of disclosure coexist. General disclosure refers to everything in the data room and public documents, deemed known to the buyer; specific disclosure targets a named fact, tied to a precise representation. The stake is the degree of precision required: a vague disclosure does not protect the seller, a data room flooded with documents does not amount to fair disclosure. On the insurance side, the link is direct: a W&I policy never covers what has been disclosed, since the risk then becomes known. Refining the disclosure schedule therefore means arbitrating, line by line, what the seller prefers to reveal to exonerate themselves and what the buyer will accept to bear, a precision task fed by due diligence that weighs as much as the cap or the duration.

Warranty, locked box and earn-out: who covers what

In a sale agreement, several mechanisms protect value, and confusing them is costly. The price mechanism, locked box or completion accounts, freezes or adjusts the value of the shares at closing based on cash, debt and working capital. The asset and liability warranty, by contrast, does not touch the price: it covers liabilities whose origin predates closing but which surface afterwards. One settles what the company is worth on the closing day, the other what may resurface from the past. A price adjustment never substitutes for a warranty, and vice versa.

To these two tools is added the earn-out, which defers part of the payment based on future performance: it does not protect against a liability, it brings seller and buyer closer when they diverge on value. The three combine in the same transaction: the price mechanism secures the snapshot at closing, the earn-out smooths a valuation disagreement, the warranty covers the unknown from the past. Well orchestrated, they complement each other without overlapping; poorly articulated, they leave gaps, a risk covered twice or not at all. It is the role of the financial adviser to map who bears what, from the agreement through to closing.

The asset and liability warranty in France and Switzerland: the real differences

The principle of the contractual warranty is common to both countries, but its legal foundation and its practice diverge. In France, the sale of shares falls under the Civil Code: the statutory warranties for hidden defects are deemed too narrow for a company, hence the systematic recourse to a standalone contractual warranty. In Switzerland, the Code of Obligations governs the warranty for defects of the thing sold, with its own limitation periods and case law, which the parties also arrange by contract. The same France-Switzerland transaction is therefore not drafted by the same hand depending on whether the applicable law is French or Swiss.

The differences nest in the details that make the claims. The tax and employment limitation periods do not coincide on either side of the border, which shifts the duration of the corresponding warranties. The usual drafting, the articulation with the escrow, the choice of applicable law and competent jurisdiction, all of this is negotiated differently. W&I insurance, finally, has stronger penetration in German-speaking regions, as the CMS European M&A Study 2025 notes. For an owner selling a company straddling both countries, a Swiss subsidiary of a French group or vice versa, the stake is to entrust the clause to an adviser with a dual France-Switzerland culture, able to align the warranty with the law that actually applies rather than transposing a template from one legal system to another.

When to use a warranty or W&I insurance

The warranty is essential in any sale of shares of an unlisted company, whatever the size: within the sale process, it is the contractual counterpart of financial due diligence, and translates into obligations what the audits brought to light. It is all the more critical when the target carries diffuse risks, complex tax, latent litigation, regulatory dependence, or when the buyer finances the deal with debt and cannot afford a surprise liability.

W&I insurance, for its part, is justified as soon as a seller wants to exit without exposure, as soon as a fund must distribute, or when buyer and seller are stuck on the level of the warranty: the policy unlocks the negotiation by offering the buyer a solvent counterparty. It is particularly suited to transactions from a few million to several hundred million, where the premium remains low relative to the comfort obtained. Conversely, on a very small sale, the fixed cost of a policy and its audit may not be justified: a classic escrow is enough.

Taking out a W&I policy, step by step

Putting W&I insurance in place follows a well-marked path, which slots into the deal calendar without delaying it if one starts early. First step, the broker canvasses the market and obtains non-binding indications, which give a range for premium, retention and cover. Second step, the buyer selects an insurer, which launches its own review: the insurer only covers what it understands, so it relies on the due diligence reports and the data room. Third step, the underwriting call, a question-and-answer session between the insurer, its advisers and the buyer's team, at the end of which the exclusions and the exact scope of the policy are fixed.

The policy then crystallises alongside signing: it excludes known and disclosed risks, fraud and unaudited matters, which remain handled by the contractual warranty or by the price. On cost, one must count the premium, of the order of 1% of the insured amount, a retention and the insurer's audit fees. The key factor is time: a policy is negotiated in two to three weeks when due diligence is solid, far longer when it is patchy. Hence the importance of anticipating and coordinating upfront the lawyer drafting the warranty, the broker placing the policy and the financial adviser who quantified the risks, so that the cover fits the reality of the file rather than the reverse.

How a warranty is triggered: from claim to indemnification

A warranty is only worth as much as the way it is enforced. When a liability surfaces, a tax reassessment, an employment dispute, an inherited unpaid receivable, the buyer must notify their claim to the seller, or to the insurer, in the forms and within the deadlines set by the contract. This point is decisive: a late or incomplete notification can defeat the right to indemnification, even if the liability is real. The contract sets the notification deadline, the documents to attach and, often, a specific procedure for third-party claims, where the seller may wish to take part in defending the dispute that will ultimately trigger the indemnification.

Then comes the question of proof and payment. It is in principle for the buyer to establish the breach of the representation and the amount of the loss, net of provisions already booked and of any recoveries, tax or insurance. If the claim is admitted, the indemnification runs on the mechanism provided: drawing on the escrowed escrow, calling the bank guarantee, or coverage by the W&I insurer. In the event of disagreement, the contract refers to the agreed dispute-resolution procedure, mediation, arbitration or state courts. This is where the quality of the warranty signed months earlier is measured: a clause clear on deadlines, proof and payment turns a claim into indemnification, a vague clause turns it into litigation.

Who to call to negotiate your warranty

Three skills combine around a warranty. The lawyer drafts the clause and holds the legal pen. The specialist broker places and negotiates the W&I policy with insurers. And an independent financial adviser quantifies the risks, frames the parameters and arbitrates the cursors in light of the valuation and the due diligence: it is they who link the cap, the duration and the escrow to the economic reality of the deal.

This is the role Hectelion plays, an independent boutique firm with dual France-Switzerland expertise and economic independence from traditional financial intermediaries. On transactions from 2 to 500 MCHF, it runs the due diligence, objectifies the liabilities and supports, within its mergers and acquisitions advisory, the negotiation of the warranty parameters, alongside the lawyer and the broker. Hectelion is neither a lawyer, nor an insurance broker, nor FINMA-authorised, and does not act on listed-company transactions: its added value is to align the warranty with the figures, where the legal and insurance professionals bring the form and the cover.

Advantages: protection, price security and clean exit

The first advantage is protection of the buyer: the warranty covers prior liabilities that surface after closing, including those no due diligence could have detected. The second is price security: a credible warranty, backed by an escrow or a policy, reassures the buyer and supports value, where uncertainty pushes to discount. The third is the clean exit offered to the seller by W&I insurance, which lets them turn the page without keeping a contingent liability for years.

To these benefits is added clarity: a well-built warranty sets down in black and white who bears what, and prevents the contract's silence from turning into litigation. Well negotiated, it protects both parties at once, the buyer against nasty surprises, the seller against unlimited exposure.

Limits: cost, complexity and exclusions

The first limit is cost, above all for W&I insurance: a premium, an audit of the policy by the insurer, and a retention below which the buyer is not covered. The second is the complexity of the negotiation: representations, thresholds, cap, durations, escrow, each parameter is a point of friction that lengthens and hardens the discussions. The third relates to exclusions: a W&I policy does not cover known and disclosed risks, nor fraud, nor certain identified liabilities, which remain to be handled by a dedicated mechanism, such as a specific indemnity or a price adjustment.

To this is added a limit inherent to advisory work: the warranty sits at the crossroads of law, insurance and finance, and no single participant covers all three fields. Hectelion brings the financial reading and the quantification of risks, and is not FINMA-authorised; it substitutes neither for the lawyer drafting the clause, nor for the broker placing the policy. This division of labour is a strength: it ensures a warranty aligned with the figures, articulated with the legal and insurance experts.

The 5 mistakes to avoid

Mistake 1: neglecting the cap and the threshold of the warranty

A cap that is too low leaves the buyer exposed, an unlimited cap ruins the seller at the first claim. The threshold and the basket rule out small disputes but, poorly calibrated, they open the door to a flood of claims or, conversely, deprive the buyer of any recourse. These amounts are not set at random, they are calibrated on the price, the risk and market practice.

Mistake 2: rushing the duration of the warranties

A uniform duration is a trap. General warranties time out quickly, but tax, employment and the environment follow far longer statutory periods. Aligning all warranties on a short duration leaves the buyer uncovered precisely on the risks slowest to surface, the ones that make the big claims.

Mistake 3: forgetting to secure payment

A warranty without a payment mechanism is a promise. If the seller has spent the price or disappeared, the buyer holds a theoretical right and nothing to seize. An escrowed escrow, a bank guarantee payable on first demand or a W&I policy turn that right into real indemnification.

Mistake 4: believing W&I insurance covers everything

The W&I policy covers neither known and disclosed risks, nor fraud, nor what due diligence brought to light without provision. Signing insurance thinking one is transferring everything, without separately handling the identified risks, leads to cover full of holes. The known is handled by the clause and the price, the unknown by insurance.

Mistake 5: disconnecting the warranty from due diligence

The warranty and due diligence are two sides of the same coin. Negotiating representations without relying on the risks actually identified means writing a clause disconnected from the ground. It is the audit that must feed the breadth of the representations, the level of the cap and the calibration of the escrow, never the reverse.

Case 1: sale of a French industrial SME with a capped warranty and escrow

A French industrial SME is sold for a price of 12M EUR. The buyer, financing partly with debt, requires a robust asset and liability warranty. The parties agree on a cap set at 15% of the price, or 1.8M EUR for the general warranties, the fundamental warranties on title to the shares and the tax component being raised to a higher level. A trigger threshold of 1% of the price, or 120,000 EUR of cumulative claims, rules out minor disputes, complemented by a per-claim floor of 12,000 EUR.

The general warranties run for twenty-four months, the tax and employment warranties are aligned with the limitation periods, and the environmental component over a longer duration. To secure indemnification, an escrow of 10% of the price, or 1.2M EUR, is held in a blocked account and released in tranches, half at twelve months, the balance at maturity. Result: the seller knows their maximum exposure, capped at 1.8M EUR, of which 1.2M EUR immediately available to the buyer, and they sold without leaving a grey area. The warranty did as much for the serenity of the deal as the price itself.

Case 2: sale of a Swiss SME with W&I insurance and clean exit

A Swiss technology services SME is sold for 20 MCHF. The seller, an owner-manager leaving the company, sets one condition: to keep no exposure after closing. The chosen solution is a W&I policy taken out on the buyer's side. The insured amount is set at 20% of the price, or 4 MCHF, with a retention of 0.5% of the price, or 100,000 CHF, below which the buyer bears the risk. The premium, paid once and for all, comes to about 1% of the insured amount, or of the order of 40,000 CHF.

The asset and liability warranty remains drafted in the contract, but the seller limits their financial commitment to a symbolic amount: in the event of a breach of the representations, the buyer turns to the insurer, not to them. The general warranties are covered over two to three years, the tax component over seven years, in line with the market practice noted by the CMS European M&A Study. The seller obtains their clean exit, the buyer a solvent counterparty, and the negotiation, long stuck on the level of the warranty, is resolved thanks to the transfer of risk to the insurer.

A word from the founder

« Many sellers sign their asset and liability warranty last, exhausted by the price negotiation. That is a fault. The warranty is disguised price: a duration too long, a cap too high, and you hand back part of what you have just obtained. »

« What I keep telling owners is that the warranty is quantified like the rest. We model the exposure, we bound it, we secure it. A well-built escrow or a W&I policy at the right level are worth more than a vague clause no one understands on the day of the claim. »

« And for a seller who really wants to turn the page, W&I insurance has changed everything. You exit clean, without keeping a contingent liability hanging over your head for years. Provided you handle separately what is known: insurance covers the unforeseen, not what due diligence has already found. », Aristide Ruot, Founder and Managing Director of Hectelion SA.

FAQ: the 10 essential questions on the warranty and W&I insurance

Introduction: what to keep in mind before the questions

The asset and liability warranty organises what the seller owes the buyer after closing, W&I insurance makes it possible to transfer that risk to an insurer. The answers below detail their parameters, their cost, their duration and the boundary between contractual warranty and insurance.

Q1: What is the difference between an asset and liability warranty and W&I insurance?

The warranty is a clause of the contract by which the seller warrants their representations and indemnifies the buyer. W&I insurance is a policy that takes over: the buyer is indemnified by the insurer rather than by the seller. The policy sits alongside the clause, it does not replace it.

Q2: Who pays for W&I insurance, the seller or the buyer?

Most often, the policy is taken out by the buyer, but its cost is negotiated and can be shared, or even borne by the seller when it is they who require a clean exit. The key is to treat the premium as an item of the overall negotiation, on the same footing as the price and the escrow.

Q3: How much does a W&I policy cost?

The premium generally sits around 1% of the insured amount, within a range that varies with the risk and competition between insurers. To this are added a retention, often of the order of 0.5% to 1% of the price, and the cost of the audit run by the insurer. Premiums have fallen in recent years, which widens access for the mid-market.

Q4: What warranty cap should be chosen?

The cap on general warranties often sits between 10% and 30% of the price, while the fundamental warranties, title to the shares, and the tax component rise higher, sometimes up to the full price. There is no single rule: the cap is calibrated on the price, the target's risk profile and market practice.

Q5: How long does the warranty last?

General warranties typically last from twelve to twenty-four months. Tax and employment warranties follow the applicable limitation periods, longer, and the environment can go beyond. Aligning all warranties on a short duration is a classic mistake that leaves the buyer uncovered on the slowest risks.

Q6: What is an escrow and what is it for?

The escrow is a fraction of the price held in a blocked account with a third party, released in tranches according to a schedule. It turns the warranty into real indemnification: if a liability surfaces, the buyer draws on the escrow, without having to pursue a seller who is sometimes insolvent or gone.

Q7: Does W&I insurance cover all risks?

No. It covers neither known and disclosed risks, nor fraud, nor what due diligence identified without provision. The known is handled by the clause, the price or a specific indemnity; insurance covers the unforeseen. Believing a policy transfers everything is one of the most costly mistakes.

Q8: Is the warranty the same in France and Switzerland?

The principle is identical, the mechanics differ. The basic statutory warranties, the limitation periods and the usual drafting are not the same on either side of the border. A France-Switzerland transaction therefore requires a clause designed for the applicable law, a point that an adviser with a dual culture secures.

Q9: Can one do without an asset and liability warranty?

In theory yes, in practice almost never. Without a warranty, the buyer has only the statutory warranties, too narrow, and takes the risk of the past alone. They will pay for it through a discount on the price or a refusal to buy. The warranty is the price of trust in the sale of an unlisted company.

Q10: When should one call a financial adviser about the warranty?

From the due diligence onwards, because it is due diligence that feeds the breadth of the representations and the level of the warranty. An independent financial adviser quantifies the exposure, calibrates the cap, the duration and the escrow, and arbitrates the opportunity of a W&I policy, alongside the lawyer and the broker. Waiting until signing to worry about it means negotiating without ammunition.

Estimate your company's value with Acontos, Hectelion's online simulator

An asset and liability warranty is always calibrated on a value, and that value, Hectelion helps you objectify with Acontos, its online tool for audit, due diligence and business valuation. Powered by Claude Sonnet 5 artificial intelligence by Anthropic and calibrated by Hectelion's methodology, it reads your accounts, normalises EBITDA, applies real sector multiples and rebuilds a net debt bridge to estimate the value of your shares in a few minutes. Launch the valuation simulator free of charge: the tool is confidential, keeps no document and does not replace a formal valuation, but it gives a reliable ballpark figure before discussing it with our teams.

Conclusion: the warranty, the final chapter of a sale's value

The asset and liability warranty is not an end-of-deal formality, it is a whole chapter of value. It decides what risk the seller keeps, what protection the buyer obtains, and the share of the price that is really secured once the dust has settled. Well negotiated, backed by an escrow or W&I insurance, it protects both camps; botched, it turns against whoever signed it blind.

The right approach is methodical: start from the due diligence, quantify the exposure, calibrate the cap, the threshold and the duration on the real risk, secure payment, and arbitrate the opportunity of a W&I policy. This is where the added value of an independent France-Switzerland financial adviser lies, alongside the lawyer and the broker: turning a clause imposed on you into a mastered negotiation tool.

Article summary

The asset and liability warranty is the clause by which the seller warrants their representations about the company and indemnifies the buyer for liabilities predating closing that surface afterwards. It is built around negotiated parameters, the scope of the representations, the trigger threshold, the cap, the duration and securing payment through an escrow or through insurance. W&I insurance takes over from the clause by offering the buyer an insurer as counterparty and the seller a clean exit.

Two logics dominate: securing the buyer against a past they did not create, and bounding the seller's exposure. The market confirms the trend, with growing use of W&I insurance in the mid-market and falling premiums, according to the CMS European M&A Study 2025. The warranty is never thought of alone: it is fed by the due diligence, quantified like the price, and secured by a suitable escrow or policy.

The two cases, a French industrial SME sold for 12M EUR with a warranty capped at 1.8M EUR and an escrow of 1.2M EUR, and a Swiss SME sold for 20 MCHF with a W&I policy enabling a clean exit, show the way forward: start from the real risks, calibrate the cursors, secure payment. The warranty is a precision tool, to be negotiated with an independent financial adviser, not a clause to sign last.