Indemnity Insurance Explained
A modest one-off policy that insures a low-risk title defect rather than fixing it, often the pragmatic answer that keeps a sound transaction moving. Here is how it works, and when to be wary.
The Short Version
- Insures against loss from a specific title or paperwork defect: it does not fix it
- Common for missing certificates, absent consents and breached covenants
- You must not contact the authority or beneficiary: it can void the policy
- Usually a modest one-off premium, lasting in perpetuity
- Who pays is negotiable; the seller is often asked to fund it
- Think twice if you plan work that engages the insured defect
What it is
Legal indemnity insurance is a one-off policy that protects against the financial consequences of a specific defect in the title or the property's paperwork. It does not fix the underlying problem, it does not create a missing document or grant a missing consent, but it protects the owner (and their lender) against loss if that problem ever causes trouble. It is a common, practical tool for keeping an otherwise sound transaction moving.
When it comes up
Indemnity insurance is typically proposed when a title or paperwork issue is discovered that would be slow, expensive or impossible to resolve properly, but where the actual risk of anyone enforcing against it is low. Common examples include:
- Missing building-regulations certificates: work was done but the sign-off cannot be found
- Absent planning permission for an older alteration, where enforcement time limits have likely passed
- Breach of a restrictive covenant: for example an extension built where a covenant said none should be, with no sign the beneficiary objects
- Lack of easement or access rights: where a right of way or drainage right is used in practice but not formally documented
- Absent landlord for a leasehold flat where the freeholder cannot be traced
- Restrictive covenant indemnity and good leasehold title situations
Why it is used instead of fixing the problem
Sometimes the proper fix is genuinely unavailable: you cannot retrospectively obtain a certificate for work done decades ago by a builder long gone. Sometimes the proper fix is available but risky: applying for retrospective consent, or approaching the person who benefits from a covenant, can actually alert them to a problem and provoke the very objection you feared. A key rule of indemnity insurance is therefore that you must not approach the relevant authority or beneficiary once a policy is contemplated, because doing so can invalidate cover.
What it costs and who pays
Premiums are usually modest, often tens to a few hundred pounds for a residential policy, and it is a single payment that lasts in perpetuity, typically also protecting future owners and successors in title. Who pays is a matter of negotiation: because the defect is the seller's, the seller is often asked to fund the policy, but practice varies and it can form part of the price discussion.
What it does and does not do
A policy pays out for defined losses flowing from the insured defect, for example, the cost if a covenant beneficiary successfully enforces, or a local authority takes action over unauthorised work. It is important to understand its limits:
- It does not make the defect go away or regularise the position
- It only covers the specific risk named in the policy, not defects generally
- Cover can be invalidated if you contact the authority or beneficiary about the issue
- It does not help if you materially change the property in a way that increases the risk, for instance, developing further in breach of the same covenant
Should you accept it?
In many cases indemnity insurance is a sensible, proportionate answer to a minor historic defect, and lenders routinely accept it. But it is worth pausing to ask your solicitor two things: whether the underlying risk is genuinely low, and whether accepting a policy now could limit what you can do with the property later, for example, if you plan to extend or redevelop in a way that touches the very issue being insured. Where you have plans that would engage the defect, insurance may not be the right route, and resolving the problem properly, or renegotiating, may serve you better.
Is it the same in Scotland?
The concept exists in Scotland too. Scottish conveyancing encounters analogous issues (missing building warrants and completion certificates, title conditions and burdens, servitude (access) rights that are used but undocumented) and indemnity or defective-title insurance is used in a similar way to bridge them. The specific defects reflect Scottish law and terminology (building warrants rather than building-regulations approvals, burdens rather than covenants, servitudes rather than easements), but the principle of insuring a low-risk, hard-to-fix defect to let a sound transaction proceed is the same.
Common Questions
Frequently Asked Questions
What is indemnity insurance in conveyancing?
It is a one-off insurance policy that protects the owner and their lender against financial loss from a specific defect in the title or paperwork, such as a missing building-regulations certificate or a breached covenant. It does not fix the defect; it insures against the consequences if the defect ever causes a problem. It is a common, practical way to keep an otherwise sound transaction moving.
Why can't I just apply for the missing consent instead?
Sometimes you can and should, but sometimes applying is riskier than insuring. Approaching the local authority about unauthorised work, or the beneficiary of a covenant, can alert them to a problem and provoke the very enforcement action you were worried about. For that reason, once an indemnity policy is being considered, you must not contact the relevant authority or beneficiary, as doing so can invalidate the cover.
Who pays for indemnity insurance?
It is a matter of negotiation. Because the defect is usually the seller's responsibility, the seller is often asked to fund the policy, but this varies and can form part of the price discussion. Premiums are typically modest, from tens to a few hundred pounds for a residential policy, paid once and lasting in perpetuity, usually protecting future owners too.
Are there times I should not accept indemnity insurance?
Yes, particularly if you plan to change the property in a way that engages the insured defect, such as extending further in breach of the same covenant, or carrying out work that would draw attention to unauthorised alterations. In those cases the policy may not help and could leave you exposed, so resolving the issue properly or renegotiating may serve you better. Ask your solicitor whether your plans conflict with the cover.
Keep Reading
Related Guides and Pages
Restrictive Covenants
One of the most common reasons indemnity insurance is used.
Property Searches
How defects come to light in the first place.
Conveyancing Glossary
Covenants, easements and title terms explained.