Case Study: Bromwall’s diligence saves construction client nearly £2 million
A few years ago, one of our clients, a large construction company, purchased a well-established joinery and woodworking business which had been trading for well over 50 years.
The takeover ran very smoothly and all the procedures,
including the insurance, transitioned over without any issues.
Let the Buyer Beware
However, after a few months, a claim was made by a former employee who was diagnosed with mesothelioma – a precursor to asbestosis. This was due to the use of asbestos in the 1950s and 60s in the joinery. Although obviously not permitted now, it was once widely used in the construction industry.
To help our client, we attempted to trace the insurers which would have covered the risk at that time. This was no easy task as, in those days, there was no database which could provide this information. Today the collection of Employers Reference Numbers and the introduction of the Employers Liability Tracing Office helps to prevent this issue from reoccurring. No such recordkeeping was in operation 60 years ago!
Subsequently, more claims were made by other ex-employees also suffering from mesothelioma. If an insurer could not be traced, the claim would have to be handled by our client as the current insurance would not cover such old claims for the newly purchased company.
We asked the former directors of the joinery if they remembered the names of their insurers at the time. One likely insurer was the Royal which is now RSA. We contacted the Royal on the client’s behalf and it appeared that they were indeed the insurers.
However, that was not the end of the story. There was another issue. Much of the Royal’s historic documentation was lost when the Manchester bomb exploded in 1996. It seemed that everything was going against us at this stage. Despite this, eventually RSA agreed they were responsible for the cover and started to handle the claims.
Needless to say, the client was extremely happy with the outcome and nearly £2 million has been paid out to several claimants.
The Moral of the Story
When purchasing a business, it is not just the assets and liabilities you buy but also the responsibility for future insurance claims.
It is crucial when carrying out the due diligence on a company purchase, that the previous insurance cover is also investigated. Your solicitor should review the records of all the insurance policies of the company being acquired and identify if there are any gaps in the cover which might impact the purchase value.
In this case our tenacity paid off and saved the client from settling such a significant claim.