Property Drop Issue 44

LEGAL
25
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
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