Lorraine’s Friday Tips For Conveyancers #1 Indemnity Insurance – Some Do’s and Don’ts

When faced with a problem on a file, most conveyancers will click for an indemnity insurance policy or (if they are as old as me) will lean over for the ring binder of standard policies.  In many cases, a self-issue policy will be the way to ensure that a transaction progresses promptly.  But before you click ‘buy’, I urge you to stop! Think!

·         Is a self-issue policy the most appropriate way of dealing with the matter?

·         Have you actually read the terms to ensure that the risk you have identified is covered by the policy? 

·         Are there any exclusions which would affect your buyer (or lender)?

If in doubt, I suggest that, when acting for the buyer, you make a full disclosure of all known circumstances to the indemnity insurers to obtain a bespoke quotation.   Most indemnity insurers are brilliantly responsive and will give you a quote and terms quickly.  In this way, your client may be better protected as there will be less likelihood that the insurer will refuse to meet any eventual claim.

The basic information which the indemnity insurer will need is:

·         The type of defect (e.g. breach of covenant, missing planning permission)

·         A copy of any relevant document (e.g. a conveyance or transfer containing a breached covenant)

·         The date the defect arose (or became known)

·         Whether any steps have been taken to put the defect right

·         Whether anyone has tried to claim rights because of the defect

·         The amount of cover needed (typically, the level of cover will be the amount of the purchase price)

Remember the dangers!

The insured must not:

·         Disclose the existence of the policy to any third party (other than prospective buyers’ lenders and legal advisers) without the insurer’s prior consent

·         Take or fail to take any action which might invalidate the policy

·         Take any steps to settle a claim without the insurer’s prior written consent

·         Make any admission

·         Apply to a court or tribunal without the insurer’s prior written consent

No approach / investigation is vital

In relation to any indemnity insurance, it is vital for the conveyancer to ensure that neither they nor their clients approach any person or organisation in relation to the subject matter of the problem against which they wish to insure. 

Remember to tell your client not to get trigger happy on Google! Tell them not to contact anyone!

This includes owners of adjoining land in relation to covenants.  Or the local authority in relation to breach of planning and building regulation.

Any approach should be made with the prior consent of the insurance company because such an approach will put someone on notice of the fact that there might be a claim.

If you are acting for a seller and the buyer wants a policy which your seller is not willing to provide, make sure you obtain confirmation that neither the buyer nor their conveyancer will make an approach to anyone about the issue.  If you do not seek this assurance and the buyer contacts someone, your seller might not be able to offer indemnity insurance to a future buyer if the current one withdraws.

Any approach could result in no indemnity insurance being available at all.