MOFS Guide to Legal Indemnity Insurance - Flipbook - Page 10
The ever-increasing rise in transactional fraud has led to responses from
the indemnity market for solutions.
An indemnity policy which protects the Insured for defects in the terms of
the lease pursuant to which the Insured owns the property, usually a flat/
apartment/maisonette is available in certain circumstances.
Policies protect against fraud, forgery or impersonation by a third party
purporting to be the seller, buyer, or owner of a residential property, as well
as for in the event that purchase money is misappropriated.
Cover is generally only available on encumbered properties where
the vendors are present and have been identified in person by the
conveyancer and cover is clearly not intended to replace professional
checks and KYC processes from being carried out in full.
The advantage of indemnity insurance to cover the risk of transactional
fraud, over the reliance on a firm’s professional indemnity cover, is that the
former is written on a non-fault indemnity basis, meaning you need only
prove loss for the policy to react, whereas with the latter some level of
fault needs to be identified. Naturally, cover is not intended to replace due
diligence and KYC checks and conveyancers should carry out all of the
required checks in the usual way.
Fraud cover is not intended to indemnify law firms and their clients where
there has been any form of ‘attack’ on the computer hardware, software or
other infrastructure, as this should be covered by cyber insurance through
the general insurance market. MOFS can assist with cyber cover, so
please do get in touch if this is of interest.
The lease may be defective because the obligations relating to the main
structure or common parts are missing or inadequate or there is no mutual
enforceability covenant in the lease. Furthermore, cover can be sought if
there is no obligation upon the freeholder to take over the management
company’s obligations if the management company is struck off or
becomes insolvent or in the event that the lease contains inadequate rights
of entry for the purposes of maintenance and repair.
Insurance cover can also be sought in certain circumstances where the
forfeiture provisions in the lease are considered defective, for example,
in the case of a long lease on residential premises, the landlord is given
the right to forfeit the lease in the event of the Insured’s bankruptcy or
to protect the Insured against the forfeiture of the head lease where the
superior landlord attempts to exercise a legal right of re-entry and/or to
enforce the covenants/terms of the superior lease. Please note that cover
is usually only available for the benefit of the Lender on the property only
and for a limited period of time (e.g. 25 years), but some insurers will
extend cover for the duration of the lease.
Please be aware...
In all these situations, it is very important not to make an
approach to the Landlord for a variation to the lease before
insurance cover is sought.
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