When a business is being bought or sold, two insurance products often come up: D&O run-off cover and Warranty & Indemnity (W&I) insurance.
They can sound similar, but they protect different things, and confusing them can leave dangerous gaps in protection.
Here’s a clear breakdown in simple English.
What Is D&O Run-Off Cover?
D&O run-off covers individual people, typically directors and senior managers, against claims made after a sale or major ownership change, but which relate to decisions made beforehand.
It protects against allegations like:
- Breach of duty
- Misrepresentation
- Misleading financial information
- Regulatory investigations
- Decisions that harmed shareholders, customers or creditors
Importantly, the insurance is in place for the protection of the former directors and officers, not the company itself.
What Is Warranty & Indemnity Insurance?
W&I insurance, also often referred to as Transaction Liability insurance, is linked to the share purchase agreement (SPA) signed during a sale. It protects the buyer or seller from losses if a contractual warranty in the SPA turns out to be untrue.
Examples include warranties about:
- Accounts being accurate
- Debts being disclosed
- Tax liabilities
- Compliance with laws
- Ownership of assets
W&I deals with contractual promises, not personal duties.
Who Is Protected?
D&O Run-Off
Former directors and officers as individuals.
W&I Insurance
Either the buyer or seller as shareholders.
A director might also be a shareholder, but the policy only responds in the role it insures. A D&O policy insures duties performed as a director, not promises made as a shareholder.
That difference is crucial.
What Risks Do They Cover?
| Risk Type |
D&O Run-Off |
W&I Insurance |
| Breach of fiduciary duty |
✔️ |
❌ |
| Mismanagement |
✔️ |
❌ |
| Negligence in decision-making |
✔️ |
❌ |
| Fraud allegations (defence only) |
✔️ |
❌ |
| Incorrect financial statements |
✔️
(if related to director duties) |
✔️
(if a breached warranty) |
| Breach of an SPA warranty |
❌ |
✔️ |
| Indemnities in the sale agreement |
❌ |
✔️ |
| Claims from creditors or regulators |
✔️ |
❌ |
This is why one cannot replace the other. They work in totally different ways.
Why Does This Matter for Agencies, Tech Firms and Entertainment Businesses?
Many UK businesses in these sectors are founder-led, and founders often wear two hats:
- Director (managing day-to-day decisions)
- Shareholder (owning the company)
During a sale, problems can arise if the founder assumes W&I will protect them personally. It won’t.
For example:
- A creative agency sells to a larger group. Months later, the buyer claims the directors overstated revenues. That’s a D&O issue, not a warranty issue.
- A tech company promises in the SPA that all software licences are valid, but one was missed. That’s a W&I issue, not D&O.
- An immersive entertainment firm goes insolvent after the sale because of historical financial mismanagement. Claims from creditors typically fall under D&O run-off, not W&I.
When Do You Need Both?
In most transactions, both cover types are required because:
- W&I protects the deal
- D&O run-off protects the people
If your business is planning an exit, merger, or restructuring, it’s usually a mistake to rely on one alone.
In Summary
D&O run-off protects former directors personally. W&I protects against broken contractual promises in the sale agreement. They complement each other, but they are not interchangeable.
Getting this right shouldn’t feel uncertain. Speak to a member of our team to understand how D&O run-off and W&I insurance work together, and what the right structure could look like for your business.
Photo by Laurin Steffens on Unsplash
