What is indemnity insurance?

Indemnity insurance, like all insurances, covers risk. Indemnity insurance ‘indemnifies’ someone against the consequences of a known, but perhaps unquantifiable, risk.

Where a property has a ‘defect’ in its legal title, meaning that there is some legal problem that could, potentially, cause significant expense at some point down the road, it would usually be a good idea to address the problem. However, sometimes the issue is not easily or quickly addressed and in these circumstances it is not unusual for an insurance company to be brought in to assess and underwrite the risks involved.

Taking Indemnity Insurance against defective title, perhaps in situations where the deeds to unregistered land have been lost or are incomplete, allows the transaction to take place whilst protecting all parties from the consequences should some title dispute arise later. It’s important to note that whilst it’s usually the buyer (and his lender) that take the insurance, it’s usually the seller that pays for it. All parties would usually be covered by it.

Defects covered by Indemnity Insurance include;

• Defective Title
• Land without satisfactory planning permission
• Land subject to a restrictive covenant
• Land without the explicit right of way (easement) necessary for access
• Chancelry Repair (historic obligations for properties in certain parishes to contribute towards the repair of the Parish Church).

Solicitors are guided by the Law Society as to when Indemnity Insurance should be considered. Costs vary, dependent on the risk, but a policy is usually between a few hundred and a few thousand pounds.

Most Indemnity policies are invalidated if any of the parties contact any third party in respect of the defect. This can mean that outstanding planning defects, for example, cannot be rectified by applying for retrospective planning permission without invalidating the insurance.