In Vietnamese M&A transactions, negotiating the seller’s representations and warranties is often the longest and most contentious stage. Buyers fear undiscovered hidden risks; sellers want to cap their liability and achieve a clean exit. When the gap between the two sides is too wide, Warranty & Indemnity (W&I) insurance emerges as a tool to bridge the divide.
This article introduces international practice on W&I insurance and the current legal framework in Vietnam. It is general information only — not an offer to sell insurance and not a substitute for legal advice on any specific transaction.
What Is W&I Insurance?
W&I insurance covers losses arising when the seller’s representations and warranties in a share purchase agreement (SPA) are breached. Simply put: instead of the buyer claiming compensation directly from the seller, the insurer pays out within agreed limits.
There are two main policy types:
- Buy-side policy: The most common. The buyer purchases insurance to protect itself against losses from breaches of the seller’s warranties. Advantage: the buyer avoids suing the seller after closing, preserving the relationship (especially important when the seller stays on in a management role).
- Sell-side policy: The seller purchases insurance to protect itself against buyer claims, achieving a “clean exit” without contingent liability hanging over it for years.
Illustrative example: An investment fund acquires 70% of a Vietnamese manufacturing company in a USD 50 million deal. The seller warrants the tax position, land rights, and intellectual property. The fund buys a buy-side W&I policy with a limit of USD 10 million (20% of deal value). After closing, the tax authority reassesses USD 3 million in back taxes for prior years — a breach of a warranted matter — and the insurer pays (after the agreed retention/deductible) instead of the fund having to sue the seller.
How W&I Insurance Works
From negotiation to claim
- Due diligence (DD): The prerequisite. Insurers only underwrite where the buyer has conducted full DD (legal, financial, tax). Deeper DD means a more reasonable premium.
- Underwriting: The insurer’s team reviews DD reports, the SPA (particularly the warranty schedule), and assesses risk — usually running in parallel with deal negotiations.
- Non-reliance letter: The buyer typically signs a non-reliance letter on advisers’ DD reports, on which the insurer relies for underwriting.
- Policy inception: Timed with signing/closing of the deal.
- Claim: When a warranty breach is discovered, the insured notifies the insurer with evidence; the insurer assesses and pays within policy limits.
Standard exclusions
W&I insurance does not cover everything. Standard international-market exclusions include:
- Known issues: Matters discovered during DD — insurers do not cover risks the parties already knew about.
- Fraud: Deliberate fraud by the insured.
- Criminal fines: Administrative and criminal fines are typically excluded.
- Forward-looking statements such as revenue projections.
The Legal Framework in Vietnam: No Specific Rules
The key legal point: Vietnamese law currently has no statute specifically regulating W&I insurance. This has been verified against Law on Insurance Business 08/2022/QH15 (effective 1 January 2023) and Decree 46/2023/ND-CP — neither contains provisions dedicated to this insurance type.
W&I insurance in Vietnam is therefore governed by the general insurance-contract framework:
- Civil Code 2015: general provisions on insurance contracts (rights and obligations of policyholders and insurers; contract formation; indemnification).
- Law on Insurance Business 08/2022/QH15 (effective 1 January 2023): the framework for insurance business activities, insurers, and insurance brokers.
In practice, because the Vietnamese market is still nascent, W&I policies for Vietnam deals are mainly provided through international insurers and brokers, often governed by foreign law (e.g., English law) with international arbitration clauses for dispute resolution.
Conditions for a Vietnam Deal to Obtain W&I Cover
- Full due diligence: Legal, financial, and tax DD conducted by reputable advisers, with written reports. This is the “entry ticket” — no serious DD, no underwriting.
- Insurer underwriting: The insurer independently assesses risk and may decline cover or add exclusions for specific risks.
- Well-drafted SPA warranties: Warranties must be specific, with survival periods and liability caps — the insurer “hooks” its cover onto these provisions.
- No fraud: Full disclosure by buyer and seller; fraud voids the cover.
When Should a Vietnam Deal Consider W&I?
Under international practice, W&I is particularly useful in four situations common in the Vietnamese market:
- Competitive auctions: Offering “W&I instead of a large seller indemnity” makes a bid more attractive without the seller carrying heavy contingent liability.
- Funds needing a clean exit: A fund at the end of its life must distribute proceeds to investors — it cannot leave part of the deal value locked in escrow for years.
- Sellers with limited financial capacity: When the seller is an individual or small company, its indemnity promise is hard to enforce in practice — insurance shifts the risk to a financially robust institution.
- Sellers staying on in management: Avoids the awkwardness of suing someone who works for you after closing.
Vietnam-specific underwriting concerns
International insurers underwriting Vietnam deals are typically extra cautious about two risk clusters:
- Land and project legality: The legal status of land use rights, project licences, and land-related financial obligations — complex and frequently disputed in Vietnam.
- Tax: Back-tax exposure, especially corporate income tax and previously applied tax incentives — an area of frequent policy change.
Indicative Cost
Under international market practice, the premium is indicatively around 1–3% of the policy limit, plus a retention (deductible) borne by the insured per claim. Pricing factors include deal size and complexity, DD quality, sector (real estate and energy typically price higher), and the scope of exclusions.
Important note: These figures are international-market references only and are not a commitment for the Vietnamese market. Premium and terms are quoted deal-by-deal by each insurer after underwriting.
Checklist: Should Your Deal Use W&I?
- ☐ Will full due diligence (legal, financial, tax) be conducted?
- ☐ Does the seller require capped liability or a clean exit?
- ☐ Are there “known” risks to be expressly excluded from cover?
- ☐ Does the premium budget (indicatively 1–3% of limit) fit the deal value?
- ☐ Have you engaged a broker experienced in W&I in the region?
- ☐ Is the SPA warranty schedule clear enough for the insurer to underwrite?
A Note on Terminology
In bilingual documents, keep the bilingual term “W&I insurance” rather than translating literally. Do not confuse it with “security contracts” (hợp đồng bảo đảm) under Vietnamese law — which refers to security interests such as pledge, mortgage, and guarantee — a completely different concept from M&A warranty insurance.
Disclaimer: This article introduces international W&I practice and Vietnam’s current legal framework (Civil Code 2015, Law on Insurance Business 08/2022/QH15) as general information at the date of publication. It is not an offer to sell insurance products; premiums, terms, and coverage are quoted per transaction by each insurer after underwriting. For specific transactions, please consult qualified legal counsel and insurance advisers.
Content reviewed by the FLAW AI Legal Council — an AI council with the mindset of seasoned lawyers. This is not the opinion of a human lawyer and does not replace direct legal advice.
This article has been reviewed by the QA Council.
For legal due diligence on M&A transactions or deal structuring in Vietnam, please contact FLAT Law Firm.