Legal Indemnity Insurance

Legal Indemnity Insurance

Legal Indemnity insurance is a specific type of insurance policy used in conveyancing transactions
where there is a legal defect or title problem, e.g. lack of planning permission
or building regulation approval or a lack of a right of way; the list is endless.

Legal Indemnity Insurance is being used more and more in conveyancing as a way of getting a transaction to the point of completion more quickly than would be possible if whatever defect is being insured against were resolved. 

A legal Indemnity Insurance Policy provides cover against any loss suffered by the insured as a result of any lawful action taken against them in respect of the defect, including, for example, any resulting loss of value of the property or any legal costs incurred in defending an action. 

It is important to understand that insurance does not cure the defect, in fact, it effectively prevents this since any attempt to correct the defect would most likely invalidate the cover provided by the insurance policy. It is usually a condition of such a policy that no enquiries or negotiations regarding the defect have taken place with any third parties. 

It is particularly important to bear in mind that, in relation to indemnity insurance for lack of planning or building regulation consent, the insurance policy will not cover against bad workmanship. 

The cost of indemnity insurance depends on the defect being insured against and the level of cover. The more valuable the property, the more expensive the policy. 

Most policies will remain in force forever, regardless of who owns the property, but if the policy is not index linked, it may not keep up with the increase in value of the property and may need to be increased on sale, which would attract an additional premium. 

If you instruct your conveyancer to buy an indemnity insurance policy there are new rules in force which affect what they must tell you, such as whether they are contractually bound to use or recommend a specific insurer and whether they receive any incentive for recommending a particular insurer. 

You also need to be provided with objective, relevant information to allow you to make an informed decision as to whether indemnity insurance is the right option for you. If you agree to an indemnity insurance policy, then you are accepting that you will be purchasing a property with a legal defect. 

Legal Indemnity Insurance can provide benefits to the house buying and selling process but should be viewed more as a remedy rather than a cure. 

For more information please contact Okells Francis Law:
Telephone – 01989 762009/01594 842242
Email – office@okells-law.co.uk