Binding
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Binding is the name given to bringing the policy into effect. When the policy is bound, it is signed by a representative from the insurer and is “on risk” meaning claims can be brought against the policy going forward from that point in time. Binding occurs at the end of the underwriting process so the policy won’t be bound if there are still items outstanding. Purchasers of W&I insurance often desire the insurance to come into effect as soon as possible after the signing of the agreement which often requires the underwriter to confirm the policy has bound only a few minutes after the agreement has been signed. In reality, this is semantics and it doesn’t matter when the policy binds because the insurer can back-date the coverage period. This means if the agreement signs on a Wednesday, the policy can be bound on a Friday with the coverage period stated as starting from the Wednesday. In fact, it is becoming increasingly common for deal teams to agree a W&I insurance policy “in principle” before the agreement has signed and then actually conduct the underwriting process after the agreement has signed. This allows the insurer more time to get comfortable with the issues within the target.