The Benefits of W&I Insurance
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Perhaps the biggest winner is the seller who has a huge amount to gain from a W&I insurance policy. They aren't going to have to pay for their mistakes so surely W&I is a no-brainer. Well this is why W&I insurance is often arranged by the sellers of transactions. Sellers will often pay to take out the W&I policy because the cost of the insurnace premium will be a lot less than the potential costly breach-of-warranty claims they might get from the buyer.
There is another benefit to sellers aside from the obvious reduction in their risk. Financial sellers, such as private equity firms, often will want to use the money they get from selling a company or asset to immediately invest in new opportunities. They don't want to have to lock away that money for years to come incase a buyer might bring a claim against them which is what they might have to do under a normal acquisition agreement without W&I. Therefore, W&I is an important tool for financial sellers to release their funds quicker.
However, W&I bring many advantages to buyers as well. For example, imagine a private equity firm is about to buy a company and it likes the company's current management team who are directors of the company (and therefore sellers). The buyer would not want to risk damaging the relationship they have built with the management team by having to pursue expensive claims for breach of warranty against them. W&I is a way for the buyer to continue working with the management team after the transaction safe in the knowledge they will not have to claim against them.
Buyers can also use W&I as a barganing chip in negotiations. If the sellers can be assured that they will not have any claims made against them they might be willing to accept a slightly lower price. Additionaly, the W&I insurance underwriting process can provide a unique information stream to the buyer which could draw attention to issues they hadn't identified yet.