Deliverables After Binding
Also in this section
After the policy has bound there are some conditions that must be met in order for the policy to be valid. A good W&I policy will make it clear what these conditions are and when they should be met but the general conditions are:
1. Payment of the premium
Hopefully this is pretty easy to understand. If you don’t pay, you won’t get a policy. Payment usually needs to be made 30 days after policy inception but some policies will allow the insured to pay 30 days after closing (provided signing and closing are split) to better align with the transaction payment. Where closing is likely to be a long time after inception, insurers sometimes require payment of a deposit up front at inception.
2. Payment of the underwriting fee
This fee is separate from the premium and is designed to cover the costs of underwriting which include the insurer paying their counsel’s legal fees. Insurers will often ask for payment of this 30 days from inception so as to enable them to pay their counsel on time.
3. Delivery of the No Claims Declaration (NCD)
Where closing is split from signing, there will be two no claims declarations to delivery to the insurer, one at signing and one at closing. This declaration is for the deal team members of the insurers to confirm that they are not aware of any breaches of the warranties. If they are aware of any warranty breaches, they can list these on the no claims declaration. Since the insured cannot claim for any issues they are aware of, these declarations are very important and usually have to be delivered to the insurer on the actual dates of inception and closing.
4. Delivery of a copy of the Virtual Data Room (VDR)
The virtual data room is used throughout the lead up to signing as a means for the seller to disclose information to the buyer. Most of the time, the acquisition agreement treats the data room as disclosed meaning the buyer can’t claim for issues identifiable from the data room. If the acquisition agreement doesn’t treat the data room as disclosed, quite often the W&I insurance policy will synthetically deem it as disclosed meaning the insured can’t claim for issues identifiable from the data room. Consequently, it is important that the insurer receives a copy of the data room. This is usually provided in USB format and something that is offered as standard by virtual data room providers. Usually, it is to be provided to the insurer within 30 days from the date of closing.