Am I liable for past malpractice claims if I buy a professional practice?

A malpractice claim is about a particular piece of work, so the first question is who did it and whether the buyer was involved. Buying a practice does not change who did the work. What a buyer takes on still depends on whether it buys the practice’s assets and client files or the shares of the professional corporation that operated it, and on the rules each profession’s regulator sets.

What the insurance rules show

The accounting regulator in British Columbia requires all firms engaged in public practice to carry professional liability insurance. It also requires members holding a public practice licence to ensure that prior acts and omissions stay covered, through riders on an ongoing policy or a separate discovery policy, for a minimum period after they stop practising. That insurance duty is written for the member who practised, and it does not by itself say who is liable for a claim.

Why claims about old work arrive late

British Columbia’s Limitation Act treats a claim as discovered on the first day the person knew or reasonably ought to have known the facts, and the basic period runs from that day. A client can therefore bring a claim about work done years earlier once the problem comes to light. The Act also sets an ultimate limitation period, and other provinces have their own limitation statutes.

Who may own the corporation

For regulated professions, the buyer may not be free to take shares at all. The College of Opticians of Ontario says all officers, directors and shareholders of an optician’s professional corporation must be registrants, and the College of Physicians and Surgeons of Ontario says holding companies may not own shares in a medicine professional corporation. A qualified buyer who takes the shares steps into the corporation that did the earlier work, so claims against it matter to that buyer.

What to ask before you sign

Ask the seller for written confirmation that coverage for earlier work will continue, a list of claims and complaints, and what the agreement says about claims that surface after closing. The guide to buying a professional practice covers the other checks.