We occasionally receive requests from local authorities, asking for assistance in arranging ‘rights of light’ or ‘village green’ insurance. One of the reasons why these enquiries only arise periodically is because any requests for cover are often channelled or initiated via the local authority’s legal department and that department may have become accustomed to dealing with those enquiries themselves, without involving the authority’s insurance team.
Within JLT Specialty, however, we have a specialist team focused on the delivery of these types of policy (known as legal indemnity insurance). Their expertise can not only provide an authority with additional choice, but can also help ensure that any legal indemnity solutions are placed at the most competitive rates available.
WHAT IS LEGAL INDEMNITY INSURANCE?
A legal indemnity policy is a type of insurance used in conveyancing transactions where there is uncertainty over a legal issue that cannot be resolved, or cannot be resolved in the available timeframe.
Defective title indemnity is perhaps the best known form of legal indemnity insurance; this is a type of policy that provides cover in the event that the ownership of land is challenged, or where a third party could seek to enforce rights or restrictions that affect the property and impact on its value, for example a right of way.
When issues like these are identified, lenders will normally insist that a defective title policy is arranged.
In the following paragraphs, we outline some common forms of legal indemnity insurance but firstly, a few words to explain some of the ways in which a legal indemnity policy differs from a property, casualty or motor insurance policy.
POLICY TERMS & CONDITIONS
Before we go on to look at some of the different types of legal indemnity insurance, we wanted to point out a number of very specific differences between them and an everyday property or casualty policy. These include:
- The insured is only allowed to disclose the existence of the policy to a third party when they have the insurer’s express permission to do so. This is to protect against the possibility of claims from someone who might sense that the insured has a ‘deep pocket’
- The insured is, however, normally allowed to disclose the existence of the policy to potential purchasers, funders, lessees, mortgagees and their respective advisors
- Underwriters require the right to control any communications with third parties who might have an ‘established right’. They will also insist on controlling communications with any future claimant
- Most legal indemnity policies provide cover in perpetuity
- Legal Indemnity policies normally include any ‘successors in title’ in the definition of insured. This ensures that any future owners of the property are automatically covered and avoids the need to assign or take out a new policy, if the property is sold at some future date
- If someone purchases a property that is protected by an existing legal indemnity policy, the purchaser needs to check that the limit of indemnity remains adequate. Consideration also needs to be given to the financial security of the insurer involved
- If someone tries to arrive at settlement with a third party but fails, it is unlikely that they will be able to obtain insurance afterwards. In other words, it’s better not to attempt any such negotiation.
INVESTIGATING THE BACKGROUND
When buying a property, the purchaser should ask the seller to provide all relevant information in their possession. Before making enquiries of any third parties, however, the purchaser should refer to insurers and secure their opinion. Any lack of discretion when making enquiries could alert a third party of their potential rights and consequently impact upon the availability or terms of any insurance.
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For further information please contact Bill Walker, Risk Management and Sales Executive on +44 (0)20 7558 3272 or email email@example.com