Indemnity insurance in an M&A context means warranty and indemnity insurance: a policy that moves part of the post-closing warranty risk from the seller to an insurer. It lets a seller take a clean exit and gives a buyer a solvent counterparty to claim against, instead of chasing individuals or an offshore holding company years after completion.
In Vietnam the product is available but still thinly used. Policies are almost always written by regional underwriters in Singapore or Hong Kong, priced off the quality of the buyer’s due diligence, and shaped by exclusions that matter locally, so warranty and indemnity insurance has to be planned into the deal timetable rather than bolted on in the final week.
Cover is priced off the quality of the buyer’s diligence. Photo: Pexels.
Warranty and indemnity insurance can transfer part of the post-closing warranty risk in an M&A transaction from the seller to an insurer. In Vietnam deals, warranty and indemnity insurance may help a private equity seller achieve a cleaner exit, strengthen a buyer’s recourse or bridge disagreement over liability caps. It does not replace due diligence or careful drafting, and its value depends on the policy’s scope, exclusions and claims process.
How warranty and indemnity insurance works
A buyer-side policy is the most common structure. The buyer claims directly from the insurer for covered loss arising from an insured warranty breach or tax indemnity. A seller-side policy instead reimburses the seller for covered liability owed to the buyer.
The policy sits alongside the acquisition agreement. The SPA defines the warranties, disclosures and underlying liability framework, while the policy determines which risks the insurer accepts and on what terms.
Why parties use warranty and indemnity insurance
Sellers may seek a low contractual cap and distribute sale proceeds without maintaining a large escrow. Buyers may obtain recourse beyond the seller’s negotiated liability, especially where sellers are numerous, foreign or expected to exit after closing. Insurance can also reduce tension when management sellers will remain involved in the business.
Coverage should be compared with the protections in representations and warranties in Vietnam M&A transactions.
Underwriting and due diligence
Insurers expect a professional due diligence process covering legal, financial and tax matters material to the target. The buyer’s advisers usually provide reports, data-room access and an underwriting call. Weak review in a particular area may produce an exclusion or require additional diligence.
The insurer does not insure uncertainty that the buyer deliberately chose not to investigate. Findings must be addressed through remediation, price adjustment, seller indemnity or another solution.
Indemnity insurance policy scope
The insured warranties should be mapped against the final SPA. Coverage may include business warranties, fundamental warranties and a tax indemnity, but terms differ by policy. The policy should define loss, knowledge, materiality, claim notice and mitigation consistently with the acquisition documents.
A synthetic policy may provide warranties directly under the policy, but it requires careful review of the facts, underwriting assumptions and governing law.
Underwriters read the reports before they will quote. Photo: Pexels.
Common exclusions
W&I policies commonly exclude matters known to the buyer, disclosed due diligence findings, forward-looking statements, purchase-price adjustments, pension underfunding, environmental contamination, transfer pricing or certain cyber incidents. Deal-specific exclusions may apply to land, licences, tax, labour, data or regulatory matters.
An exclusion should be assessed commercially. A broad exclusion affecting a core asset may remove much of the expected protection.
Exclusions are where indemnity insurance most often disappoints a buyer who has not read the policy closely. Standard carve-outs include matters disclosed in the data room or identified in the diligence reports, forward-looking statements and financial projections, transfer pricing, secondary tax liabilities, bribery and sanctions exposure, environmental contamination, and any purchase price adjustment. Anything excluded has to go back into the sale agreement as a specific indemnity, an escrow or a price reduction.
Known risks and specific indemnities
Known risks are normally outside W&I coverage. The parties may use a seller indemnity, escrow, retention, price reduction or specialist contingent-risk insurance. The relationship between the policy and specific indemnification clauses should be explicit.
Retention and policy limit
The retention is the amount of loss borne before insurance responds. It may reduce after an agreed period. The policy limit is the insurer’s maximum aggregate liability and should be selected based on deal value, risk profile and the seller’s remaining exposure.
De minimis amounts, baskets and caps in the SPA should not create an unintended gap. Their combined effect is explained in basket, threshold, cap and de minimis provisions.
Claims periods
Policy periods often differ for business warranties, fundamental warranties and tax matters. They should be compared with statutory limitation and assessment periods relevant to the target. A policy may allow a longer notification period than the seller’s SPA liability, but the exact wording controls.
Retention, limit and claims periods are agreed together. Photo: Pexels.
Subrogation and seller liability
After paying a claim, the insurer may have rights against responsible parties. In buyer-side W&I policies, subrogation against sellers is often limited to fraud or another agreed exception. The policy, SPA and disclosure letter should use consistent fraud standards and identify whose conduct is relevant.
Vietnam-specific considerations
Parties should confirm whether the proposed insurer, policy placement and premium payment comply with applicable Vietnamese insurance and foreign-exchange requirements. Policy governing law, dispute forum, tax treatment and payment currency should be considered early. The insurer should understand Vietnamese corporate, licensing, land, tax and employment records.
Three local features shape the cover. Land use rights and construction permits frequently show historical defects that underwriters will not insure without a clean legal opinion; social insurance and payroll compliance is a recurring underwriting question in labour-intensive targets; and conditions attached to conditional business lines are often excluded because compliance depends on future regulatory behaviour. Because indemnity insurance for a Vietnamese target is usually written offshore in a foreign currency, premium payment and any claim proceeds must also be planned against Vietnam’s foreign exchange rules.
Process and timing
Insurance should be introduced before the SPA is finalised. The insurer needs time to review drafts, due diligence reports and disclosures. Last-minute changes to warranties, knowledge groups or liability limits can create mismatch or require underwriting approval.
Buyer checklist for indemnity insurance
- Appoint the broker and insurer early.
- Run comprehensive legal, financial and tax diligence.
- Map insured warranties against the final SPA.
- Review every general and deal-specific exclusion.
- Coordinate retention with baskets and escrow.
- Align claim periods, knowledge and loss definitions.
- Confirm regulatory, tax and foreign-exchange treatment.
- Preserve direct protection for known risks.
Conclusion
Warranty and indemnity insurance can improve execution and post-closing risk allocation in Vietnam M&A, but only when it is integrated with due diligence and the acquisition agreement. The buyer should evaluate the protection that remains after exclusions, retention and procedural requirements rather than relying on the policy limit alone.
Frequently asked questions about indemnity insurance
What is warranty and indemnity insurance in an M&A deal?
It is a policy, usually taken out by the buyer, that responds to a breach of the seller’s warranties in the sale and purchase agreement. The insurer stands behind the warranties in place of the seller, so the seller’s contractual liability can be reduced to a nominal amount while the buyer still has a solvent party to claim against during the warranty period.
How much does indemnity insurance cost on a Vietnam transaction?
Pricing is quoted as a rate on the policy limit rather than on deal value. For a Vietnamese target regional underwriters commonly quote in the region of one to two per cent of the limit, plus underwriting fees and any applicable insurance taxes. The rate reflects sector risk, the scope of the buyer’s due diligence and how heavily the warranties have been qualified by disclosure.
What does indemnity insurance not cover?
Known risks are the main gap. Matters disclosed in the data room or found in diligence, purchase price adjustments, forward-looking statements, transfer pricing, bribery and sanctions issues and environmental contamination are commonly excluded. Those risks have to be handled by a specific indemnity from the seller, an escrow, or a reduction in the price.
How long does it take to put a policy in place?
Allow three to four weeks from first approach to inception on a straightforward deal. The underwriter needs a draft sale agreement, the disclosure letter and the buyer’s diligence reports, and will run an underwriting call before issuing terms. Approaching the market only after the agreement is finalised is the most common reason indemnity insurance is not ready in time for signing.
Can the seller still be liable if the buyer has insurance?
Yes, to the extent agreed. A typical structure leaves the seller liable for a nominal amount plus fraud, for the specific indemnities the insurer has excluded, and for the fundamental warranties on title and capacity. The policy will normally waive subrogation against the seller except in cases of fraud, so the seller’s residual exposure is set by the agreement rather than by the insurer.
Next step
Decide early whether the deal is a candidate for cover, because underwriters price off diligence that has to be commissioned before signing. Test the warranty package against the statutory framework governing the target in the Law on Enterprises, then map every exclusion to a specific indemnity, an escrow or a price adjustment before the policy is bound.
IVLF Lawyer works with buyers, sellers and brokers on insured deals in Vietnam, from scoping diligence to underwriter Q&A and policy negotiation. An experienced Vietnam M&A lawyer keeps the sale agreement and the indemnity insurance policy consistent so that gaps do not appear after completion. See our legal services or contact IVLF Lawyer.
Related reading: Representations and warranties in Vietnam M&A, Vietnam tax due diligence, and Acquiring a foreign-invested company in Vietnam.
This article is provided for general information only and does not constitute legal advice for any specific case. Regulations may change – please consult a qualified professional before acting. Should further analysis be required, please contact one of our lawyers below.
