When merging a practice contact Bernadette Mallia or Terri Hedt about premiums.
If your firm is considering a merger or disbanding, you need to consider LPLC’s system of premium risk rating. Many of the queries we receive about this issue emerge only at renewal time, when a firm suddenly realises it has acquired a claims history it had not anticipated and an increased premium as a consequence.
The way LPLC deals with these issues is as follows:
- When Firm A merges with Firm B, Firm B becomes a “prior practice” of Firm A under the terms of Firm A’s professional indemnity insurance policy. Future claims against Firm B (or the former principals of Firm B) will then be covered under Firm A’s policy. For risk rating (and premium calculation) purposes, Firm B’s claims history will be combined with Firm A’s claims history. This means that Firm B’s claim profile will affect Firm A’s future risk rating.
- The practice of Firm A ceases and Firm A is disbanded, even though some or all partners of Firm A join Firm B and/or Firm C. Firm B and Firm C will be risk rated without regard to the premium or claims history of Firm A.
- Some of the partners of Firm A join Firm B but the practice of Firm A is merged with Firm C. Firm B will be risk rated without regard to the premium or claims history of Firm A but Firm C will be risk rated on the combined premium contributions for the risk rating period (currently 5 years) of Firm A and Firm C, as well as the combined claims payouts or reserves for that period.
In determining which of the above three circumstances exists, LPLC will have regard to the following factors:
- Any relevant agreement between Firms A and B (and A and C, if applicable)
- How the arrangement was represented externally by the firms
- How the arrangement was characterised for tax purposes
- Where the partners and staff of Firm A went under the arrangement
- Which firm occupied the premises of Firm A after the arrangement
- Which firm collected the pre-arrangement debts of Firm A
- Whether Firm B (or Firm C) assumed other assets or liabilities of Firm A
- Any other factor that LPLC considers relevant
LPLC recommends that if your firm is considering merging with another, you should seek permission from that firm to obtain a copy of its premium and claims history from us.