A legal indemnity policy addresses various title and transactional risks. However, the coverage typically includes the following types of losses:
- Legal and professional fees incurred in defending a claim.
- Costs involved in the event of a successful claim, including remedy costs (release/modification/obtaining an easement/complying with enforcement action), compensation, damages and complying with court orders.
- Contractual costs.
- Planning costs, architect and surveyor fees.
- Interest due under mortgage terms.
- Loss in market value.
While these losses may be suitable for purchasers of a freehold or long leasehold (as well as for most mortgage lenders), they might not be adequate in some scenarios. For instance, when the proposed insured is acquiring a short-term lease with little value in the leasehold interest, or in a commercial setting where the primary risk involves trade interruption or potential relocation expenses. The good news is that there are insurance add-ons available tailored to cover specific losses. We delve into these below.
Loss of Profit
Indemnifies the insured for any loss of profit (income or revenue) due to a claim under the policy. It is typically requested for commercial properties and renewable projects, providing protection when the insured cannot trade for a certain period.
Loss of Rent
Protects the insured (usually a landlord or freeholder) from any loss of rent resulting from a claim under the policy. It applies to any policies where an occupational lease is present or being negotiated, covering the insured for periods where the tenant cannot occupy the property due to an insured event or risk.
Tenants’ Rental Liability
The opposite of loss of rent, this covers tenants for any liability under the lease to continue paying rent when they cannot legally occupy or trade from the property due to a claim.
Fit Out Costs
This applies to tenants under an occupational lease and includes costs incurred in fitting out the property for trading purposes, which go to waste if a claim prevents the tenant from returning to the property. It is effectively the equivalent loss in value for a tenant seeing as they don’t own the bricks and mortar.
Relocation Costs
Typically applies to tenants under an occupational lease and covers the costs incurred in relocating equipment to a new property to continue trading, resulting from a claim that prevents them from occupying the insured property.
Delay Costs (Legal Indemnities and Rights of Light)
These costs are contracted to be paid while an insurer defends a claim resulting from an injunction or court order (i.e. before it reaches an order, settlement or decision). They may include contractual penalties, additional loan facilities (including interest), delays in redeeming loans (including interest), and potentially staff costs if they cannot be deployed elsewhere and are contracted to be paid and working. While most indemnity providers offer an element of this cover as standard, there is usually no payout until the claim is settled, except for ongoing legal and professional costs. However, at Thomas Carroll, we can obtain specific delay costs cover that will pay out during the interrupted period. It is a popular request on Right to Light risks but is also increasingly requested on development risks affected by title matters, such as restrictive covenants.
Agreed Conduct Cover
In contentious cases, where a claim is perhaps already on the horizon and you might believe insurance may no longer be an option, it could be possible to seek this cover which allows the insurer to act in a supervisory capacity during early claim negotiations. Payouts are only made if legal proceedings are subsequently initiated. Often sought on Rights of Light policies, these can also be looked at for more traditional title risks.
Need Advice?
We can advise on, negotiate and arrange the correct coverage on your behalf. We can also provide training sessions on extensions to cover or general legal indemnity risks.
If you require further information, please contact our Legal Indemnities Risk Adviser, Gemma Astbury-Dennis on 07879 665609 or at gemma.astbury-dennis@thomas-carroll.co.uk.
