Two forms of W&amp;I insurance exist: buyer-side and seller-side.

<strong>Buy-Side Policies</strong>

Buy-side policies are attractive to buyers because they offer them a direct claim with their insurer, avoiding the possibility of ending up in a longer dispute resolution process with the sellers. Additionally, buy-side policies provide buyers with protection against fraud by the sellers.

The key benefits to buy-side policies are that they alleviate buyer’s concerns surrounding the sellers’ ability to pay any claims arising post-completion. Also, in some transactions, preserving the commercial relationship between the parties is important such as where the management are remaining within the target for a period following completion. Buy-side W&amp;I insurance can help preserve this commercial relationship if a claim arises since the claim will not require the buyer to sue the sellers.

<strong>Sell-Side Policies</strong>

Policies can also be taken on the sell-side and cover claims brought against the sellers. The policy will include obligations for the sellers to cooperate with the underwriter in responding to any claims. As this policy is taken out by the sellers, it does not cover fraud on their part.

Sell-side policies provide sellers with a cleaner exit from the target since the sellers will not have to be as concerned about looming claims. Sellers will ordinarily benefit from a quicker release of funds because the buyer will be assured by the existence of the policy.  However, they are less flexible than buy-side policies and tend to lend themselves better to an investment into a business by multiple investors rather than a sale.

<strong>Common Exclusions</strong>

Different policies and underwriters will vary their exclusions but there are a range of issues which are excluded in most policies:
<ul>
 	<li>In buy-side policies, fraud on the part of the buyer(s);</li>
 	<li>In sell-side policies, fraud on the part of the seller(s);</li>
 	<li>Post-completion adjustments to the purchase price, which are ordinarily made by reference to a completion mechanism in the SPA and disputes arising out of this are ordinarily referred to a 3rd party expert to resolve;</li>
 	<li>Fines which are uninsurable by law;</li>
 	<li>Known issues or issues which fall outside the areas covered by the due diligence process;</li>
 	<li>Issues disclosed in the disclosure letter; and</li>
 	<li>Other specific exclusions which vary depending on the nature and sector of the business.</li>
</ul>
<strong>Premium and Level of Cover</strong>

W&amp;I insurance takes the form of a one-off premium and in the UK is subject to a 12% insurance premium tax. There is no renewal cost and the premium is highly dependent on the risk factors and sums involved. Some of the factors which underwriters consider when determining the premium are:
<ul>
 	<li>How broad the warranties/indemnities are;</li>
 	<li>The sector and industry the target is operating within;</li>
 	<li>The quality of advisors involved in the transaction, including the scope and quality of due diligence; and</li>
 	<li>Trends in the relevant sector and industry, based on the underwriter’s claims data.</li>
</ul>
The level of cover varies depending on the size of the deal; however on larger transactions the policy limit will usually be around 30% of the target’s enterprise value. On smaller transactions the policy limit is often higher than this, with potential to cover the whole purchase price. The level of cover can be impacted by the parties’ negotiations around who is paying.  Even on a buy-side policy, it is usual for a buyer to insist on the sellers paying half, if not all, of the policy cost.