Limitations in Acquisition Agreements
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What Are Limitations?
Limitations refer to clauses in the agreement which place limitations on the extent of the seller’s liability. These limitations of liability are often contained in their own schedule (just like the warranties) and there are standard limitations that are always present in virtually all agreements. These include, for example, limitations for any liability arising out of a change of laws, or any liability that has already been reserved for in the company accounts.
Limitations and W&I Insurance
Since a W&I insurance policy works by allowing the insured to claim for any loss that can also be claimed under the acquisition agreement, it is important that the W&I policy disapplies some of the limitations. For example, the policy will always disapply the time limit for bringing a claim under the agreement as well as the monetary quantum limitation. A W&I policy can disapply these clauses from the agreement because the policy will include relevant wording that makes it clear what can and can’t be claimed for under the policy.
Negotiating Limitations
There are some less clear-cut limitations that the buyer might ask the insurer to disapply in their policy. This will purposely create an element of unknown in the policy so that there is a chance the buyer might be able to claim more under the policy if the opportunity ever arose.