W&I Claims in Australia: What the Data Tells Us (and How to Prove Your Loss)

Claims frequency

Claim notifications remain a consistent feature of W&I policies in Australia and New Zealand, with approximately 20% of policies receiving a claim.¹ Notably, 80% of these claims stem from deals with an enterprise value of less than $500 million,² underscoring the higher relative frequency of claims in smaller transactions. This pattern is consistent with global trends: AIG’s data similarly shows that 60% of loss dollars come from deals smaller than US$250 million, even though those deals account for only 44% of premium dollars.³

What gets claimed?

In Australia and New Zealand, the more common breaches leading to W&I claims relate to compliance with laws, tax matters and financial statements warranties. Breaches of litigation and employment warranties also feature prominently. Employment-related warranty claims remain a particular area of caution for insurers, given the complexity of regulatory compliance and the evolving legal landscape. Litigation related warranty claims also often feature where the seller has not disclosed (or not disclosed the true nature of) a material dispute.

A recurring theme is inadequate disclosure during due diligence, whether related to general information warranties or specific disclosures relevant to other warranties.⁴

Timing

Nearly 25% of claims are notified to the insurer within six months of closing, and almost 50% within 12 months. Close to 100% are notified within three years, aligning with the typical W&I policy period (excluding tax and fundamental warranties).⁵ Post-deal integration plays a significant role as issues will often surface as the buyer gains deeper visibility into the target's operations, financials and compliance posture.

Buyers should also be alert to notification obligations under the policies. Strict compliance with notice conditions (including timing, form and content requirements) is essential to a smoother claims process and reduces the risk of the insurer arguing there has been non-compliance with the policy.

Proving loss: the critical challenge

Loss quantification is where many claims become contested where insurers may scrutinise causation and the measurement of damages. A buyer will need to show that: (a) a warranty was breached; (b) the breach caused a financial impact; (c) that impact is quantifiable using a defensible methodology (noting that the measure of loss may differ depending on the nature of the warranty breached); and (d) that the claim falls within the remit of the policy (eg meets the relevant financial thresholds and is not subject to any of the exclusions).

For financial statements breaches, this typically means restating the target's accounts to reflect the "true" position at completion and recalculating enterprise value. Under Australian law, a buyer claiming breach of warranty is entitled to be put in the position it would have been in had the warranty been true. Where the deal was priced on an EBITDA multiple, a breach that reduces EBITDA may result in a multiplied loss. Globally, claims alleging greater than dollar-for-dollar damages are increasing. For Aon policies incepted between 2021 and 2024, 23% of claims allege multiplied loss.⁶ Insurers are accepting multiplied damages where appropriate, but the methodology must be robust.

Where multiplied damages are claimed, buyers may be scrutinised not only on whether a multiplier applies but also on its magnitude. Insurers might argue, for example, that certain cost impacts are non-recurring and shoud not attract a multiple, or that the applicable multiple needs to be adjusted. The recent decision in DTZ Worldwide Limited v AIG Australia Limited [2025] NSWSC 12, one of very few Australian judgments on W&I disputes (previously considered here) (alongside the earlier Victorian Supreme Court decision in UDP Holdings Pty Ltd v Ironshore Corporate Capital (No 2) [2019] VSC 645), illustrates the importance of carefully quantifying loss in circumstances where the purchase price is based on a multiple of projected earnings. DTZ acquired a group of companies for approximately $1.2 billion, with W&I insurance (total limit $300 million) as the buyer's sole recourse for warranty breaches (other than customary exceptions).

Post-acquisition, DTZ alleged breaches of the accounting and disclosure warranties relating to a major facilities management contract for a stadium in Singapore (FM Contract), which was beset by significant operational and financial issues, including unexpectedly high cleaning costs and the imposition of performance penalties – neither of which were disclosed to the buyer, claiming losses exceeding $230 million.

The Court found that the seller had not breached the accounting warranties but the disclosure warranties were breached arising from the failure to disclose the fact that the costs of cleaning were substantially more than budgeted and were likely to mean that, contrary to expectations, the FM Contract was likely to be loss-making at least for a couple of years. The Court found that DTZ was entitled to recover damages consequent on that breach and that a reasonable method of assessing those damages would be to determine the present day (as at the date of breach) value of the difference between the profits originally forecast to be earned under the FM Contract up until the end of the first benchmarked period with the profit or loss during that period arising from the increase in cleaning costs. The Court rejected DTZ's damages assessment as unfounded and speculative noting that "it is a case where the Court is being asked to pluck a figure out of the air".

Accordingly, while there were issues raised by the Court in relation to the valuation methodologies of the buyer to establish damages, the buyer's claims against the insurer ultimately failed in relation to the breach of disclosure warranties as the amount calculated using the reasonable basis outlined by the Court above would be substantially less than the threshold for the cover provided by the first excess policy ($42m).

The message for buyers: the robustness of the valuation methodology will be determinative, regardless of the quantum claimed. Whether using a discounted cash flow (DCF) model, an EBITDA multiple, or a cost-to-cure approach, the inputs must be defensible and supported by contemporaneous deal documents. Insureds need to explain the valuation methodology used at acquisition; a post-completion rationalisation will not be sufficient. The English case of Finsbury Food Group Plc v AXIS Corporate Capital UK Ltd [2023] reinforces this: where the buyer valued the target by reference to annual sales revenue rather than an EBITDA multiple, it was not open to the buyer to claim multiplied damages. It is useful to bring in quantum experts early to commence quantification while insurers are still determining liability.

The claims experience

Gathering evidence post-completion is challenging, especially if the seller is not cooperating. Without access to the seller's contemporaneous knowledge and documents during due diligence and signing, a buyer will struggle to establish causation and certain legal steps may need to be taken against the seller to obtain information required by the insurer. This is especially the case where the claim relies on proving what the seller knew but failed to disclose prior to completion.

Ultimately, the insured may well need to speak to personnel, collect emails and engage experts and lawyers, as well as their brokers. Legal and accounting expertise is often required, making the process intricate and time-consuming.

Buyers should also be conscious that the passage of time can erode their evidentiary position. Key personnel may leave the business, documents may not be preserved and the seller's recollection of pre-completion matters will likely diminish. Early identification and preservation of relevant evidence is therefore critical.

That said, the overwhelming majority of claims globally resolve through negotiated settlement and Aon’s insurer survey data indicates that only about 1% proceed to arbitration or litigation.⁷ In a maturing market where insurers are increasingly investing in claims expertise and streamlining their processes, the sponsors who approach claims strategically, with robust disclosure assessments, defensible valuation methodologies and disciplined insurer engagement, are the ones achieving material recoveries.

Takeaways for Australian dealmakers

Sellers should:

• consider the overall impression created by their conduct, disclosure and, perhaps most importantly, what has not been disclosed (that may give rise to a claim); and
• consider whether making any further specific disclosures (for example, in a disclosure letter) is appropriate to ensure that the buyer is on notice of all material information before the sale agreement is entered into, particularly where those disclosures are or could be material to the buyer, relate to matters that are likely to go directly to value or are at odds with what a buyer has otherwise been told (or led to believe) about the target business.

Buyers should:

• ensure that there are contemporaneous records of the valuation principles used to arrive at the purchase price. The insured buyer needs to explain the valuation methodology used at acquisition and a post-completion rationalisation will likely be insufficient;
• consider including a requirement in the sale agreement that the seller reasonably assists with the preparation of a W&I claim (to the extent not covered by information sharing obligations); and
• be alert to notification conditions in W&I policies and ensure that notice is given in strict compliance with the policy requirements as to timing, form and content.