Buyer of insurance firm compensated for warranty breach
A company has been compensated for a breach of warranty after it bought an insurance firm.
The case involved a firm that sold policies related to motor or household insurance.
When it was sold in 2014, the seller provided warranties that the company accounts were accurate and a fair representation of the company’s financial situation.
The agreement stated that the seller would not become liable for a breach in the warranty if it came as a result of a change in accounting policy after the sale had taken place.
It added that if a dispute arose, the maximum sum recoverable by the buyer would be the purchase price.
After purchasing the company, the buyer discovered that liabilities to pay certain claims had been understated in the accounts.
They had therefore not been sufficiently provided for and the company was effectively insolvent.
There had also been a change in the method of paying insurance brokers, which the seller had failed to disclose.
The High Court ruled that on the balance of probabilities, the opening position in the company’s 2013 accounts had not been accurate.
The under-provision occurred due to an error within the accounts, not due to any change in policy after the sale.
The court also ruled that the change in the method of accounting for brokers’ pay had not been disclosed.
Due to the warranty agreement, the damages payable to the buyer were limited to the purchase price.
Please contact Sing Li for more information about the issues raised in this article or any aspect of contract law.