An insured distributed dividends from a Spanish entity to a Luxembourg parent entity and sought to rely on a double tax treaty to pay tax in Luxembourg. The insured tax risk arose if the dividends were instead deemed taxable in Spain. The policy was taken out to provide coverage in the event the Spanish Tax Authorities (STA) challenged the tax treatment of the distribution.
Tax Claim
In due course the STA initiated a tax audit, which the insured notified to insurers under the policy terms. The insured engaged with the audit and provided responses to the STA, all with the prior consent of insurers.
The STA duly assessed a liability for withholding tax, alleging that the parent lacked substance in Luxembourg. Insurers provided support for the first instance appeal, which was unsuccessful. Following this, and on the basis the insured was required to pay the alleged tax liability to continue its appeal, insurers paid an Advance Tax Payment to the insured in accordance with the policy terms.
The insured has now filed a second stage appeal in the Spanish Courts and insurers continue to pay defence costs, whilst awaiting a final determination.
Insight
Although early in its life cycle, the specific risk tax product is operating exactly as anticipated, with insurers supporting the dilligenced position by making payments of defence costs and advance tax payments.
References
6 All case studies in this report are hypothetical claim scenarios
based on aggregate factors that the Aon team has seen in practice. The
language of the actual representations in the applicable purchase agreement,
the specific facts of a claim and the coverage afforded by the policy
ultimately will determine the outcome of each scenario.
Scenario
After closing, the Buyer discovers that there are errors in the target company’s financials. These errors include: (1) failing to accrue for costs related to annual plant maintenance; (2) improperly recognizing certain revenue in the trailing twelve months (TTM) period; and (3) overstating the account receivables balance by not writing down impaired collectability risks.
Breach and claims process
The above issues comprise typical breaches of the financial statements representation in the acquisition agreement. The language of the financial statements representation and the standard applied therein (i.e., in accordance with GAAP, industry standard, consistent with past practices, etc.) will control the analysis and claims investigation. The claims process will involve the Insurer’s financial advisor reviewing the material provided by the client’s financial advisor/counsel and then following up with questions aimed at validating breach and the corresponding loss. The challenges that arise during financial statements claims vary greatly but often relate to disagreements over how the breach impacts the buyer’s valuation model, how similar situations may have impacted the purchase price during negotiations, materiality thresholds under GAAP, whether the breach impact is recurring and/or whether the loss valuation is reliant on estimates that were not repped to in the financial statements.
Outcome
Based on our experience, should the above scenario violate the accounting standards provided in the financial statements representation, we would expect the Insurer to recognize breach and loss. Further, we would anticipate that error one (failure to accrue for costs) and error two (improper revenue recognition) would result in more than dollar for dollar loss because those losses are recurring in nature. That recurring loss would likely be based on how the deal was valued. So, for instance, if the deal was valued on an EBITDA multiple then those verified loss amounts would be subject to the same calculation. For error three, we would anticipate that the insurer might take the position that these damages should be reimbursed on a dollar-for-dollar basis, claiming that they are not recurring in nature.
References
6 All case studies in this report are hypothetical claim scenarios
based on aggregate factors that the Aon team has seen in practice. The
language of the actual representations in the applicable purchase agreement,
the specific facts of a claim and the coverage afforded by the policy
ultimately will determine the outcome of each scenario.
Scenario
An insured acquired a target company with several material customers. Following completion, the insured became aware that one of the target’s key customers had in fact terminated its contract with the target prior to signing. The contract represented significant ongoing revenue for the target and was factored into the valuation methodology and the purchase price paid for the target.
The insured submitted its claim to the insurer and breach of the material contracts warranty was quickly established. The policy and SPA were subject to English law and loss was considered on a share-value basis. In order to quantify the loss suffered, both the insured and insurer appointed financial experts, who alongside the parties and their legal advisers considered contemporary evidence of the valuation methodology (which included a multiples basis), the recurring nature of loss given the length of the contract and how the issue would have been dealt with at the time of the transaction, had it been known. Following discussions between insured and insurer, steered by Aon, the parties reached a mutually agreeable commercial compromise and agreed to settle for an eight-figure sum.
Insight
Contemporary evidence of the valuation methodology used in a transaction can be key when advancing a claim with loss on a share value basis. Insurers and insureds will commonly instruct financial experts to consider the quantification of loss, and factors may include the recurring nature of the loss, to what extent the loss is of a type factored into the valuation methodology, how the issue would have been dealt with between the seller and a reasonable buyer had it been known at the time of the transaction as well as the value of the shares and purchase price.
References
6 All case studies in this report are hypothetical claim scenarios
based on aggregate factors that the Aon team has seen in practice. The
language of the actual representations in the applicable purchase agreement,
the specific facts of a claim and the coverage afforded by the policy
ultimately will determine the outcome of each scenario.
Scenario
Post-completion, the insured discovered that there was a third party demand against the target, which was in litigation and where the litigation warranty was considered breached.
The insured submitted its claim to the insurer but did not provide any information or seek the insurer’s consent with regards to significant defence costs being incurred. Aon reminded the insured of the need to involve the insurer in its defence strategy, and the insured settled the third party litigation with the insurer’s involvement and consent to settlement.
Following settlement a discussion followed between insured and insurer on defence costs cover, and Aon assisted the insured in successfully claiming some of its defence costs from the insurer.
Insight
With third party demands it is important for insureds to be aware of insurers’ rights regarding settlement and prior written consent to defence costs, to ensure compliance with policy terms and to avoid curtailing the insured’s own claim.
References
6 All case studies in this report are hypothetical claim scenarios
based on aggregate factors that the Aon team has seen in practice. The
language of the actual representations in the applicable purchase agreement,
the specific facts of a claim and the coverage afforded by the policy
ultimately will determine the outcome of each scenario.
Scenario
An insured submitted its claim notice directly to the insurer without first consulting its broker, who it copied in when submitting the notice. In its drafting of the claim notice, the insured had set out the relevant warranties considered to be breached but only as those warranties were covered under the SPA, not reflecting the seller knowledge scrapes which the insured had purchased as part of its cover under the policy.
Claims Process
Following receipt of the claim notice, the insurer raised various requests for information, including the seller’s knowledge of the issue. Aon flagged to the insured that they were not required to demonstrate seller knowledge as a result of the knowledge scrape enhancement provided under the policy, and assisted the insured in preparing its responses to the RFIs, including setting out that seller knowledge was not required. Breach of warranties was established.
Insight
The policy is the contract agreed between insured and insurer, and should be considered as the first source for the bases of warranties covered, both in relation to scrapes and also in relation to warranty qualifiers.
References
6 All case studies in this report are hypothetical claim scenarios
based on aggregate factors that the Aon team has seen in practice. The
language of the actual representations in the applicable purchase agreement,
the specific facts of a claim and the coverage afforded by the policy
ultimately will determine the outcome of each scenario.
W&I claim severity is increasing, with more large, complex matters at the upper end and lower retentions pulling a wider range of smaller issues into paid‑claim territory.
Severity is rising with larger (eight-figure plus) claims now more frequent. Low and nil retentions are also pulling a wider range of smaller claims into the frame.
Claims Severity
Over the last year, we have seen a clear trend of increasing claim activity and, within that, movement at both ends of the severity spectrum. At the upper end, we are seeing a growing number of larger, more complex matters. Consistent with this, it has become increasingly routine for us to see initial notifications presented with claimed quantum of eight‑figures or more.
At the same time, given the soft market conditions, competition between insurers on the coverage offered has brought a number of smaller issues into the claims process. In particular, we are observing more claims being pursued under policies with nil, “tipping to nil”, or otherwise minimal retentions, with average retentions having dropped from 0.71% in 2021 to just 0.27% in 2025 (not including nil retention policies), meaning more policies respond from the first dollar of loss.
While this can enhance the economic value of cover from an insured’s perspective, it also means that matters which might historically have sat below the retention are now being actively advanced, with a corresponding impact on the number of paid claims.
Quantification of loss remains a key point of contention in claims. In many instances, this involves a debate between a share value‑based approach (for example, using transaction multiples or discounted cash flow methodologies) and a more straightforward pound‑for‑pound assessment. While there is a growing number of claims advanced at a materially higher quantum, our experience is that those supported by robust expert analysis are the ones more likely to translate into substantial insurer payments. By contrast, we continue to see a number of significant claimed losses submitted without the benefit of financial advice, which can prolong the process as parties work to bridge evidential gaps and reach an agreed view on valuation.
Figure 27 illustrates the distribution of total claims payments by target location between 2023 and 2025.
The regions accounting for the largest share of payments remain broadly consistent with historic experience, reflecting those markets that adopted the product earliest. However, we are now beginning to see material payments emerging in France, the DACH region, Iberia and Italy.
Given the broader notification trend across EMEA, our expectation is that a number of additional jurisdictions will generate meaningful payments over the next 12–18 months, recognising that, in our experience, the notifications we are seeing today typically translate into paid claims over that time period.
Figure 27: Aon Data: Total Claims Payments by Target Location (2023–2025)
Spotlight on the Middle East
Spotlight on Claims in the Middle East
The Middle East & Africa W&I insurance market is progressing rapidly, with both deal flow and claims activity becoming more established. Between 2022 and 2025, submission volumes for Middle East transactions grew by more than 150%, driven by increasing interest from both buyers and sellers in using W&I insurance, alongside a notable broadening of underwriting appetite from insurers. This growth has been especially pronounced in the UAE and Saudi Arabia, where sustained levels of cross-GCC and inbound M&A activity are supporting robust demand for the product.
Claims activity is now beginning to mirror this expansion. Over the course of 2025, we observed a marked rise in notifications, including several high-severity claimed losses in the eight- and nine-figure range, and the first paid claim in the region. Given the continued increase in policy inceptions and reported matters, we expect further claim development over the course of 2026. As the regional market scales, insureds will continue to benefit from access to Aon’s experienced, EMEA-wide claims team, helping to support efficient, commercially focused resolution of claims.
Chapter 2.3
EMEA
Breach Type and Drivers of Loss
Loss remains concentrated in financial statements and tax warranties, but breach activity and loss are gradually spreading into a wider set of provisions, including litigation, compliance with laws and disclosure.
