How to Negotiate a Data Safety Warranty in an M&A Transaction
It’s not that surprising that more distributors are offering their customers a brand new kind of warranty, a cybersecurity warranty. Security breaches affecting data will impact businesses every two seconds and cost businesses $265 billion by 2031. These warranties help reduce the financial risk of cyberattacks and shift the liability to the company providing the service. These warranties are typically employed together with cybersecurity insurance to fill in the gaps that insurance policies leave.
Warranties are a great way to transfer financial risk, but they’re not a substitute for a comprehensive risk-management system. While a cybersecurity guarantee can be used to substitute for cyberinsurance, they should collaborate to lower the chance of a breach.
It is crucial to limit the liabilities that aren’t covered under warrants when you negotiate one in an M&A deal. For instance the regulatory offence process is typically have long time limits that could exclude indemnification under a warrant.
Manufacturers should also make sure that their warranty covers the intended use of their products. Machine learning tools that study walking patterns can be covered under warranty to help people identify the right shoes or diagnose chronic pain. However, if the machine is used to monitor or intercept communications, a warranty disclaimer may keep manufacturers from acknowledging any liability.