Exclusions
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Deal Specific Exclusions
As the name would suggest, deal specific exclusions are exclusions that the underwriter has identified as being relevant to each specific transaction. After their review, the underwriter has concluded that a certain area is too high risk to be able to cover and therefore will include a specific exclusion for that issue in the policy.
For example, where there is serious GDPR non-compliance within a target company and the buyer has done little in the way of reviewing the extent of this issue, it may be appropriate to include an exclusion for any breach of GDPR legislation. The below exclusion is an example of a GDPR exclusion that would be applicable for English Law agreements since it also excludes a breach of the legislation that brought GDPR into UK law.
a breach of the EU General Data Protection Regulation 2016/679 or the Data Protection Act 2018.
Insurers will likely have some risk areas that they take a very conservative approach on and therefore will likely propose these areas as exclusions at the quote stage. They will also be very unlikely to remove these exclusions. For example, common deal specific exclusions that are seen in a majority of W&I policies are:
Loss of Tax Asset means any liability arising in respect of the loss, unavailability, disallowance or reduction of any Relief that (a) has been taken into account as an asset, or in computing any provision, in the accounts of any member of the Target Group; or (b) is the subject of, or relates to, any warranty (if any), indemnity (if any) or covenant (if any) in the share purchase agreement, provided that this exclusion shall not operate to exclude any Loss in respect of an actual liability for Tax arising as a result of any event or events occurring on or before Closing or in respect of any profits, income or gains earned or received on or before Closing.
Secondary Tax Liability means a liability to pay an amount in respect of Tax which is the primary liability of any person other than (a) the Insured or (b) a member of the Target Group.
Transfer Pricing Liability means any restriction applied to the deductibility, for corporation tax purposes, of any interest paid or payable by the Target Group, whether as a result of transfer pricing legislation, hybrid mismatch rules, or otherwise.
Other deal specific exclusions may be proposed by the insurer for less risky items. These exclusions can likely be negotiated by the insured through their broker. If the insured can show that they have done an adequate amount of work gathering information and reviewing in relation to a specific information, the insurer is much more likely to be able to remove their exclusion from the policy. This is because such adequate work will allow the insurer to see that the risks are within the knowledge of the insured and therefore the risks have been disclosed. Issues that have been disclosed to the insured are not covered under a W&I insurance policy.