If you are considering a law firm merger or acquisition, then you need to take great care to understand what the position will be as far as you professional indemnity insurance (PII) is concerned. The issues are as follows:
There are very detailed rules that determine when a firm will be a “successor practice” for PII purposes and in some scenarios the outcome might be different to what you had expected. If your firm is a “successor practice” then you will be responsible for any claims that are made against an acquired or merged practice in the future, unless that firm confirms and pays for elective run-off cover in advance of their closure. Discuss the position with your broker in the first instance and consider taking specialist advice for complex scenarios.
Obtain a copy of a firm’s latest PII proposal form and up-to-date claims history at a very early stage. Merging the data relating to gross fees and areas of work will enable you to understand what the profile of the combined practice will look like. This can be relevant to the range of insurers that will have appetite for your business in the future. If you are taking responsibility for claims as a “successor practice”, you also need to remember that the historic claims history for the prior practice will become part of your claims history.
Advise your broker of your plans at the earliest opportunity. They can liaise with your insurer and find out what the potential premium would be after the merger or acquisition and whether underwriters have any concerns about your proposals that would represent a barrier to them continuing to offer cover at renewal. Always remember – no PII, no practice.