How to Negotiate a Data Safety Warranty in an M&A Transaction
It’s not unusual for distributors to be offering their customers a brand new type of warranty, called a cybersecurity warranty. Security breaches to data will affect a business every two seconds and cost businesses $265 billion by 2031. These warranties mitigate the economical risk of cyberattacks and removes by shifting liability to the vendor. They’re typically a supplement to cybersecurity insurance. They aid in filling in the gaps where insurance may not cover a reduction.
Warranties can be a great tool to transfer financial risk, but they aren’t an alternative to a complete risk management system. A cybersecurity warranty could be substituted for cyberinsurance. However they should both be used together to lower the risk.
When negotiating a warranty contract in an M&A deal, it’s essential to be aware of and limit the liability that aren’t covered under the warrant. For instance, regulatory cases typically have lengthy limitations periods that could be excluded from indemnification under a warranty.
Manufacturers also need to ensure their warranties cover how the they intend for their products to be used. For instance machines that analyze the walking patterns of a person could be warranted for a range of purposes including helping people determine the right shoes or diagnosing chronic pain. However, if the device is being used to monitor or intercept communications, a warranty disclaimer can hinder manufacturers from assuming any responsibility.