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.
Insurer experience shows the way W&I claims are framed and evidenced, particularly around breach and loss, can materially influence outcomes, reinforcing the value of careful preparation at notification stage.
Effective claims management is driven by a collaborative, rather than adversarial, approach between insureds and insurers. Whilst a W&I claim notification is not litigation, insureds must still demonstrate breach, causation, and loss to secure recovery. Notifying a claim with your broker’s assistance and with professional advice (legal as well as financial where required) materially improves the prospects of a successful outcome.
Coverage Issues
In our 2025 study, we set out Aon’s top tips for achieving a smooth-running W&I claim. In this year’s analysis, we have gone a step further by asking insurers to rank the coverage issues they most commonly find occurring on W&I claims, and the process issues that most frequently arise, providing a clear window into insurers’ day-to-day claims experience.
The results highlight that the fundamental points of a W&I claim remain key: establishing breach and loss. Figure 36 demonstrates that insurers ranked establishing breach of warranty (other than due to warranty qualifiers) and quantification of loss as the two most frequently encountered coverage issues on W&I claims. Application of exclusions (actual knowledge and disclosed matters, as well as deal-specific and standard exclusions) also featured prominently, underscoring the need for insureds and their advisers to consider the policy terms—not only the SPA—when preparing a claim. At placing stage, they should also ensure that exclusions are drafted as tightly and unambiguously as possible.
Figure 36: Insurer Survey Data: Most Commonly Occurring Coverage Issues for Insurers (2017–Q4 2025)
Claims Process
When considering the claims process itself (see Figure 37), insurers again put breach and loss at the heart of the matter, identifying inadequate information to assess breach and inadequate information to assess loss as the top two most frequent process challenges, with average rankings of 1.67 and 1.78, respectively (where a ranking of 1 represents the most commonly occurring issue).
Delays in providing information or responding to requests for information (RFIs) ranked as the third most frequently occurring process issue, indicating that insureds can sometimes contribute to the overall length of the claims timeline (although we likewise sometimes encounter insurers’ delay in responding to claims, raising overly detailed RFIs or the variation in claims handlers, and their subjectivity of review causing an overly extended claims timeline). By contrast, insureds’ handling of third-party demands and settlements ranked lower as a concern, suggesting insureds’ awareness of the need to involve insurers appropriately in third-party claims. General communication breakdowns also ranked relatively low, which is a positive signal that most stakeholders are approaching claims in a coordinated way; in our experience, a collaborative rather than adversarial approach is consistently more effective.
From an Aon perspective, we would always emphasise the value—where time permits—of a robust, detailed claim notice that clearly sets out the factual background, identifies the specific warranties breached and why these are breached, and, to the extent possible at the outset, outlines the loss which flows from those breaches. Careful early review of the policy (including the wordings of the warranties as covered and any exclusions that insurers may scrutinise) will result in a better-prepared notification and a smoother claims process. Aon is well placed to support insureds and their advisers in this exercise, and to anticipate the issues insurers may focus on in their evaluation.
In our experience of coverage issues, we see that the demonstration and quantification of loss is an area of increased focus, particularly where loss is based on diminution in share value. Insureds should expect that insurers will seek to understand contemporary evidence of the valuation methodology used at deal stage when assessing loss. Equally, insurers should give due weight to insureds’ evidence and insight on how the relevant issue would have been reflected in the pricing or transaction structure had it been known at the time, recognising the insured’s often deep understanding of its business and sector. Early engagement of financial experts can be highly effective in evidencing and substantiating the quantum of loss.
Figure 37: Insurer Survey Data: Most Commonly Occurring Claim Process Issues for Insurers (2017–Q4 2025)
APAC’s transactional risk market is now a mature class of insurance, with W&I usage expanding beyond Australia and New Zealand and generating a growing body of claims data.
