Every property, title and lease is different. Sometimes a property will have a defect in its title or lease, or may be missing planning or building regulations consents for works previously carried out. Indemnity insurance is a policy available from specialist insurers that provides cover for issues like this. It is a contract with the insurer that they will pay compensation should the event being insured against occur during the policy term.
Why is indemnity insurance required?
Indemnity policies do not cure defects; instead, they are an insurance policy that can be claimed against if the event being insured against occurs (provided the insurer’s terms and conditions are being met), and they are used when the cost of rectifying the defect is prohibitive, or where it may be impossible to rectify.
If a defect exists then it may be impossible for a firm of solicitors to provide a lender with a clear certificate of title without first obtaining an indemnity policy for that risk.
Even if a property is being purchased with cash, it is still always advisable to obtain an indemnity policy for any defects revealed during the conveyancing process, to cover the risk of issues arising after completion of a purchase and to ensure that the property is saleable in the future.
What types of indemnity insurance are available?
Most specialist indemnity insurers offer “off the peg” policies that are available online. These include policies for defects in title, defects with leases, lack of planning, building regulations or listed building consent, chancel repair liability, lack of easement/access rights, and even for environmental/contamination issues and lack of searches.
Bespoke policies are also an option if a policy needs to be tailored to deal with a specific risk.
What isn’t covered by an indemnity policy?
It is important to check the cover provided and the exclusions noted on each policy. These will differ with each type of policy and may be affected by the information provided to the insurer at the outset.
As an example, lack of building regulations indemnity insurance provides cover for legal costs incurred if dealing with enforcement action by the local authority’s building control department, and for the loss in value of the property caused by the lack of consent. However the policy will not cover the cost of building works required to remedy the defect.
Similarly, listed building consent indemnity insurance will similarly only cover the legal costs incurred when dealing with enforcement action taken by the local authority relating to the breach, together with the loss in value caused by such a defect. It will not cover the costs of works required to rectify the defect, nor will it prevent legal action being taken in respect of any criminal offence committed by carrying out unauthorised works.
Terms and conditions of insurance
It is imperative that the terms and conditions of the policy can be met at the date the policy is incepted and can continue to be met throughout the policy term. Failure to comply with the terms and conditions of the policy may result in the policy being invalidated and a claim may not be accepted by the insurer if it there is any breach of the terms of the policy.
For instance, most indemnity policies will not provide cover following a change of use and an endorsement to the original policy would have to be sought from the insurer where a change of use is to take place, to ensure cover continues to be available.
In particular, you should not make any enquiries or searches with anyone before a policy is put in place as you may put someone on notice that a defect exists with the result that insurance cover is no longer available. Similarly, making enquiries after a policy is in place will usually breach the terms of the policy and could lead to it being invalidated. It is also important not to admit liability for any claim made against you which would be covered by the indemnity policy. In this instance you should always contact the insurer and your solicitor in the first instance. A lender may also need to be notified.
Do lenders accept indemnity insurance?
Most lenders will accept indemnity insurance, but this should be checked with the lender on each transaction. Some lenders will not accept certain types of indemnity insurance and your solicitor should check the lender’s requirements and clarify this with the lender if there is any doubt about whether an indemnity policy will be accepted.