Poland: W&I and title insurance in real estate (and beyond) – practical tips and common mistakes

1. Understanding the product and exactly what needs to be insured

A frequent issue in transactional practice is the mistaken assumption that Warranty & Indemnity (W&I) insurance always offers the same level of protection as traditional guarantee-based liability under representations and warranties, no matter the depth of the due diligence investigation. Due diligence reports often lack certain information or documentation, or particular areas might be left unchecked. Nevertheless, recommendations are frequently made to include representations and warranties in the agreement to address these gaps.

However, underwriters typically exclude from coverage any representations and warranties relating to factual matters that were not verified during due diligence. It is therefore essential to consider the intended liability framework from the outset of the due diligence process. Careful attention should be paid to the scope of the review, ensuring that all covered areas are well-documented and defensible, particularly where limitations in scope are introduced. Any deviations from market-standard thresholds or areas should be justifiable in terms of their impact on the knowledge base concerning the target and wording of representations and warranties, whether it is an asset or a company.

2. Treat underwriting seriously

The quality of input during the underwriting process directly impacts the scope and effectiveness of the final policy. Delegating responses to underwriting questions to less experienced team members, or treating the process as a formality, often leads to limited or compromised coverage. To secure robust protection, it is essential to provide high-quality, substantive answers. The underwriting process should be approached with the same level of rigour as the rest of the transaction.

3. Title liability cannot be fully excluded

In Polish real estate transactions, the combined use of title insurance and W&I insurance is increasingly standard, particularly to achieve full (100 %) coverage of the property's value. A recurring mistake by sell-side counsel is the attempt to completely exclude liability for title-related representations and warranties in the transaction documents. This approach is flawed. While the seller's liability under a W&I setup may be nominal (often limited to EUR 1), it must still exist for the insurance to function properly, especially in traditional (non-synthetic) W&I structures.

Furthermore, double-coverage clauses are standard in W&I policies, and these often specify that title-related issues will only be covered if not "actually covered" by the title insurance. The wording should be carefully reviewed to ensure alignment. Crucially, it should not be up to the seller to determine from which insurer the buyer may claim.

4. Streamline the negotiation of representations and warranties

While M&A practitioners are now well-versed in working within W&I liability constructs, the real estate sector is still adapting. This is evident in the tendency of some legal counsel to extensively redraft representation and warranty language, even when such language has been pre-agreed with the underwriter. In transactions involving W&I insurance, the sell-side review should focus on confirming that its representatives do not have actual knowledge of any false, misleading or inaccurate statements.

Importantly, insurers retain subrogation rights in cases of fraud or wilful misconduct (though most limit this to fraud). Polish law also prohibits the exclusion of liability for intentional damage. Thus, when advising sellers, it is essential to ensure that no representation knowingly misstates the facts. A granular negotiation of each word in the representations and warranties is typically unnecessary and inefficient when a W&I policy is in place—shortening the negotiation process is one of the reasons W&I coverage is advantageous for both sides of the deal.

5. Customise the policy, don't just accept the standard wording

A transactional insurance policy should not be treated as a one-size-fits-all document. There are many opportunities to refine its provisions. For example, the definition of "loss" can often be expanded to include reasonably foreseeable indirect or consequential loss, or loss of profit—even if the transaction agreement uses a narrower definition. The definition of the seller's "best knowledge" can also be tailored to include additional individuals who were meaningfully involved in the disclosure process (with confirmation from the seller's side).

In certain deals, using so-called "scrapers" in the policy, like VDR scrapers, due diligence report scrapers or best knowledge scrapers can further improve the coverage.

author: Agnieszka Gul-Czajkowska