Indemnity policies are commonly used in conveyancing
transactions to overcome legal issues which could otherwise stall,
delay or even kill a transaction completely. Indemnity polices do
not resolve the legal issue that has arisen but rather provide
cover for the risk that has been identified and any associated cost
that may follow any enforcement action.
More and more clients and solicitors are willing to accept
indemnity policies for an ever growing list of legal issues and
problems but as with all good things there comes restrictions as to
when a policy will be valid and can be used to cover any potential
risk that is posed to a would be buyer and lender. Your solicitor
should be able to advise whether an indemnity policy is suitable or
The most common mistake that Estate Agents and clients make,
when trying to assist to resolve a legal issue is to make
disclosure to a third party which in turn means the insurance is no
By way of example, a client or Estate Agent seeking to resolve a
situation where there are no building regulations and trying to be
helpful may contact Building Control to check if they can search
for the relevant consents or to enquire about the possibility of
retrospective consent. By doing so you or the Estate Agent have
made a disclosure to a third party and the insurance route is no
longer available. You should always check with the your solicitor
before making any such approaches to third parties.
Similar issues arise where works have been undertaken to a
leasehold property without landlord's consent. In most
situations an indemnity policy can be taken out, but not if you
have contacted the landlord to enquire about retrospective consent.
Always check with your Solicitor before making these calls.
In both the above situations, you could have also now put
yourself or your client if the Estate Agent makes the approach to
the third party to additional costs in having to legally resolve
the situation which is not only timely but costly. If the sale then
falls through the vendor can still not take out an indemnity policy
for the new buyer as the approach has been made.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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A discussion on a recent judgment of the High Court of New Zealand, which indicates how New Zealand courts will approach indemnity disputes associated with commercial property damage caused by the Christchurch earthquakes.
This case considered whether, where a liability policy contained an exclusion excluding liability arising under a contract, unless such liability would have attached in the absence of such a contract, and where there was a judgment finding the insured liable for breach of contract, that foreclosed the question as to whether there was also tortious liability that would fall within the terms of cover.
A recent Court of Appeal case, has fired a warning shot that the costs of preparation could be disallowed if skeleton arguments are not kept as concise as possible.
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