Where is the boundary?
An acquisition involves uncertainties. Many buyers therefore rely on Warranty & Indemnity insurance to cover the risk of breach of warranties in the purchase agreement. A recent ruling by the Amsterdam District Court on 26 March 2025 (ECLI:NL:RBAMS:2025:2041) shows where the boundary lies with disclosure warranties and when your company should share information about developments at a major customer. This is relevant for anyone working in contract law, international trade and litigation, as claims under S&I insurance often end up in a dispute and proceedings about liability.
Core topic
In a transaction involving a contract research organisation, a claim was presented to the insurers under a W&I policy. The buyer alleged that the vendor had breached disclosure warranties by failing to disclose that the largest customer would distribute tests differently through an affiliate. It also alleged that a renovation budget had been understated. The key issue was whether this information should have been shared under the purchase agreement and whether this created coverage under the S&I insurance. The court stressed that a guarantee should be interpreted according to what the parties could reasonably expect. The disclosure warranties required that information important to a buyer and known to the seller was shared, and that information in the Data Room was materially accurate and complete.
The court found that the seller had not breached the disclosure warranties. The documents did not show that the customer relationship had ended prior to the acquisition. This was an announced redistribution of tests, with further cooperation precisely being discussed, including a service level agreement with the partner that would provide certain laboratory services. There was no prospect of such negative developments that the seller should have notified. Uncertainties are part of doing business and do not automatically justify an additional duty of disclosure, especially if the buyer knew that there was no long-term written agreement with the customer and did not ask any further questions during the due diligence. Moreover, for the renovation budget, the potentially higher investment was below the retention agreed in the policy, so the insurers did not have to provide coverage for that reason too.
What does this mean?
What does this mean for your business. Disclosure warranties are not a safety net for every change in commercial relationships. They are information that is important for the buyer to get a fair picture of company, assets and liabilities. If a major client announces it is dividing tests differently while betting on cooperation through an SLA, that is not without question a material adverse development that should always be shared. Certainly not when the vendor had a reasonable expectation that volumes would grow through investment by the customer and that specialised tests and overflow would continue to flow through your company.
In practical terms, this is all about the combination of due diligence and contractual arrangements. If you know that a top client does not have a contract or that the relationship is shorter than with other clients, that requires additional questions and clear agreements in the purchase agreement. Record what information qualifies as material and explicitly ask about intended reallocations, SLAs, and operational integrations such as LIMS links. Also make it clear that forecasts are not guarantees, so that discussions about growth and revenue expectations are not unfairly presented as breach of guarantees. On the S&I side, retention plays a decisive role. A difference in capex of several tonnes can fall under retention, which means that a claim will simply not be covered by insurance, even if there is substantive discussion about accuracy of shared information.
Tips for practice
Start by mapping your critical customers, contract status and the duration and stability of relationships. Focus due diligence on operational and commercial changes that have been announced and document the seller's responses. Use the purchase agreement to clarify the scope of disclosure warranties and define what is considered important information. Explicitly name the knowledge status of the seller and those from whom enquiries have been made. Also document how forecasts, SLAs and integrations are weighted.
Evaluate the S&I coverage for retention, limit and the exact link to guarantees in the purchase agreement. Test whether potential capex deviations or project costs are expected to exceed retention. Prepare a Claim Notice carefully with underlying documents showing that there has actually been a breach of a warranty and that the loss qualifies as a covered loss. If a dispute arises, choose a litigation strategy that focuses on both the contractual interpretation of warranties and the terms of insurance, so that you do not litigate unnecessarily on points that do not affect coverage.
More information.
Do you have questions about disclosure warranties, S&I coverage or an ongoing liability dispute in an M&A context. Contact our Corporate & Commercial Litigation team via the button below.
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