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.
While APAC’s leading breach categories broadly mirror global patterns, the claims we see are closely tied to regional nuances in disclosure practice, financial reporting, regulatory oversight, and tax enforcement.
While broadly consistent with global patterns, the leading breach categories in APAC have some distinct regional characteristics.
Disclosure-Driven Claims in APAC
Non-disclosure and misleading disclosure can result in W&I claims in a variety of ways. Claim fact patterns frequently include:
Undisclosed or mis‑described material contracts (including loss‑making arrangements, hidden termination penalties or adverse terms not highlighted during diligence);
Undisclosed leases, borrowing facilities and off‑balance‑sheet obligations; and
Incomplete or misleading presentation of complaints logs, regulatory correspondence or internal investigations, particularly in consumer‑facing and regulated industries.
In APAC, where language diversity, document standards, and disclosure practices can vary significantly across jurisdictions and between local and international counterparties, the disclosure-driven claims experience reinforces the need for clear disclosure protocols and careful scoping of disclosure-based exclusions.
Financial Statements
Across APAC, breaches of financial statements and management accounts representations are a leading driver of claim payments.
Common themes include: under-recognition of liabilities (such as prepaid customer credits, environmental, or lease-related obligations and employee-related accruals), overstatement of assets or revenue (such as aggressive revenue recognition practices, inventory issues, or incomplete impairment processes), and gaps between management accounts presented in diligence and underlying audit records.
Several large APAC claims have involved the discovery of financial issues that are recurring in nature or result in a diminution in value of the company, leading buyers to seek multiplied damages or other loss that is more than dollar-for-dollar.
This pattern aligns APAC with global trends in which financial statements claims represent a large share of paid loss. It also explains the increasing underwriting focus on revenue recognition policies, off-balance-sheet exposures, and the robustness of local audit standards and controls in less familiar jurisdictions.
Compliance and Regulatory Risk
Compliance with laws is a frequent breach category in APAC and has become particularly important in Australia and New Zealand, where competition and consumer law regimes are active, as well as in India and Korea, where tax, customs, and regulatory agencies are increasingly assertive.
Underlying scenarios in the current dataset include competition and consumer law issues (for example, alleged cartel conduct, Australian Consumer Law complaints, and regulatory investigations), licensing and authorisation shortfalls (such as missing certifications or non-compliance with sector-specific regulatory regimes), and employment and payroll compliance issues (including failures to correctly withhold or remit taxes and social contributions).
These claims often arise beyond the first year, post-deal completion, once regulators have completed investigations and formal notices/determinations have been issued.
The growing number of compliance-driven losses in APAC has direct implications for deal structuring and underwriting, particularly where there is a history of regulatory scrutiny of the industry or deals involve multiple jurisdictions with overlapping enforcement risk. Buyers are relying on W&I to absorb these latent regulatory exposures.
Tax
Tax-related breaches and standalone tax liability policies feature prominently in APAC’s claims profile. Key themes include income tax and transfer pricing disputes (especially in Australia and India, with authorities scrutinising cross-border financing, related-party arrangements, and large corporate groups); customs and indirect tax exposures (such as mis-classified imports and VAT/GST issues); and withholding and payroll tax failures (including non-filing or late filing of PAYG or equivalent returns and associated penalties).
APAC has seen claims involving multi-year audit and reassessment processes, interest, and penalty components in addition to the underlying tax. Claims have also been made well into the back half of the policy period and, in some cases, near or after the expiry date of general warranties but within extended tax coverage periods. While in many cases the initial tax liability exposure appears to be significant, policyholders have often been successful in reducing the ultimate liability and resulting payment under the W&I or tax policy.
These patterns suggest that, in APAC, tax remains a low-frequency, high-potential risk, with a claim profile that is notably more long-tailed than general W&I coverage. For both W&I tax coverage and standalone tax liability insurance, this reinforces the importance of long claim reporting periods (often 7–10 years), careful pricing, and structuring of tax cover, particularly where cross-border or treaty-based positions are central to deal value. Moreover, it highlights the need to explicitly address interest, penalties, contest costs, and gross-up in policy wording.
W&I and Tax Insurance
From both a deal and insurer perspective, the APAC claims experience is beginning to reshape expectations.
For dealmakers and buyers, W&I and tax insurance are increasingly seen as essential tools on large and cross-border APAC transactions. Buyers are leaning on the product to address disclosure and information asymmetries in less familiar jurisdictions as well as the long-tail tax and regulatory exposure where local enforcement is active and evolving. Where a transaction involves complex, multi-jurisdictional structures, and where traditional seller recourse is limited, W&I insurance is seen as providing meaningful protection to buyers.
Chapter 3.3
APAC
Sector-Specific Claim Trends
APAC’s W&I and tax claims data is now sufficient to show clear sector patterns and a distinct timing profile, with direct implications for how deals are structured and insurance is placed in the region.
