Indemnity insurance is a form of insurance taken out in conveyancing transactions where legal issues arise that cannot be rectified easily or quickly. This type of insurance can be obtained to mitigate against the risks arising from breaches of restrictive covenants, lack of planning permission/building regulation approval, chancel repair liability or missing title documents, amongst other issues.
For example, there may be a restrictive covenant affecting the title to the property, which has breached and which remains capable of enforcement. By placing an indemnity insurance policy on risk, the insurer would then take responsibility for defending the enforcement action should this be taken. Alternatively, certain works to a property may lack the required planning permission or building regulations approval. If the local authority were to take action to enforce the breach, then the insurer would defend the action on the insured’s behalf.
Indemnity insurance is not always available and insurers will insist that certain conditions apply when providing cover. There are also conditions which must be adhered to once the policy has been granted. It is often the case that the existent of indemnity insurance must not be disclosed to third parties or action taken which will encourage enforcement action.
It is important to note that the insurance itself does not rectify the problem, however, if does provide a temporary solution to enable the transaction to proceed. The insurance can be obtained for a one-off payment ranging from around twenty pounds to several thousand pounds.
In general, it is the seller who would agree to pay for an indemnity policy, particularly if the policy is required as a result of a defect in the seller’s title. However, it is negotiable between the parties and it can fall upon the buyer to bear the cost of the insurance; particularly if the buyer’s mortgagee requires it.
DKLM are able to provide advice with regard to indemnity insurance policies and their suitability for use in your particular transaction.