Insurance: dispute over higher premiums
The High Court has had to unpick the fall-out of the sale of a law firm, with the seller claiming unpaid purchase money and the buyer arguing that the failure to disclose potential legal action against the firm led to sharp increases in the cost of its indemnity insurance.
The eponymous owner of Leicester firm Douglas Wemyss Solicitors agreed to sell the practice to Sameer Karim in 2008 for £100,000 and sums due at the time of sale in respect of debtors and work-in-progress (WIP). Mr Wemyss stayed on as a consultant.
Half of the sale price was deferred but never paid, while Mr Wemyss also claimed outstanding consultancy fees and WIP, totalling around £135,000 in all plus interest.
In Wemyss v Karim & Anor [2014] EWHC 292 (QB), Mr Wemyss’s claim largely succeeded, with HHJ David Cooke in the High Court in Birmingham giving him judgment for £105,375 plus interest.
But he also accepted some of Mr Karim’s counterclaims, in particular Mr Wemyss’s failure to disclose a possible claim that was eventually issued in 2011 and settled by the firm’s insurers for £325,000 (although £50,000 was attributable to another defendant).
The firm paid £27,283 for its indemnity insurance in the year of the acquisition and it went as high as £58,101 in subsequent years.
HHJ Cooke said that though the claims history was “a significant problem”, the market’s volatility was also responsible for some of the increases, and eventually decided that £58,000 of higher premiums up to the current indemnity year were recoverable from Mr Wemyss under the sale agreement.
The end result was that Mr Wemyss was due £45,000.
Under Mr Karim, Douglas Wemyss Solicitors has won several awards, including the Law Society Excellence Award for client service in 2011 and Leicestershire Law Society’s law firm of the year award in the same year. Last year the firm was named small business of the year in the Leicester Mercury business awards.
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