Warranty and indemnity (W&I) insurance is a policy, bought by the buyer or the seller, that responds directly to a breach of the representations and warranties in a Canadian purchase agreement, instead of or alongside a seller indemnity.
A W&I policy is a private insurance contract layered on top of the same mechanics as a negotiated seller indemnity, not a substitute created by statute. The policy typically sets its own retention — functioning like a negotiated basket — and its own limit, functioning like a negotiated cap, and its claims period is set to track (or outlast) the negotiated survival period for the underlying representations. Because nothing in Ontario law compels a seller to accept a cap and there is no default rule filling a silent agreement, a buyer who wants more certainty than the seller is willing to negotiate has an alternative to pushing harder at the table: buying the additional protection instead.
The insurers underwriting these policies are regulated the same way as any other Canadian insurer. Where one is federally incorporated, OSFI “regulates and supervises Canadian banks, insurance companies and private pension plans to determine whether they are in good financial condition” — but the policy itself, its retention, its limit and its price are all negotiated commercial terms. No Canadian regulator publishes a standard form, a required minimum retention, or a benchmark premium for warranty and indemnity insurance, and none should be assumed.
Suppose a seller refuses any indemnity cap above 10% of a $10,000,000 purchase price and refuses a survival period beyond 12 months for general representations. The buyer wants deeper, longer protection than the seller will negotiate. The buyer instead purchases a buy-side W&I policy with an insurer retention of $150,000, a $2,000,000 limit, and a 24-month claims period. When a breach of a general representation surfaces in month 18 — after the seller’s own 12-month contractual survival period has already expired — the buyer can still bring a claim against the policy, even though a claim against the seller directly would already be time-barred.
See also: Indemnity cap, Indemnity basket, Survival period
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