Indemnity Insurance of Contingent Buildings Bank conveyancing obligations

Godiva Mortgages and Natwest, in common with many mortgage companies, have their own specific instructions when it comes to contingent buildings indemnity insurance. The content herein aims to help property law solicitors on the different bank approved list of panel lawyers where the title for the the property to be mortgaged incorporates contingent buildings. Lawyers are advised to familiarise themselves with the CML handbook requirements for each bank, be it Halifax, Barclays or Barnsley BS. The information on this page is not focused on contingent buildings indemnity insurance requirements.

Need help with contingent buildings indemnity insurance from your lender?

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Accord and Lloyds TSB like most banks, instructions are such that where contingent buildings indemnity insurance is to be taken out:

• the contingent buildings indemnity insurance policy should not incorporate terms that you are aware would invalidate or prejudice the interests of the mortgage company
• you must spell out to the borrower that the borrower is obliged to comply with any conditions of the contingent buildings indemnity insurance policy and that the borrower should notify the mortgage company of any notice or potential claim in relation to the insurance
• the contingent buildings indemnity insurance policy should be effected without expense to the mortgage company
• you must disclose to the insurer all relevant information which you have gathered
• you must provide a duplicate of the contingent buildings indemnity insurance to the borrower and explain to the mortgagor why the contingent buildings indemnity insurance policy was effected and that a further policy may be necessary if there is additional lending against the security of the property
• your practice must approve the terms of the contingent buildings policy on behalf of the mortgage company
• the minimum level of cover for the policy must meet the requirements for the bank (See Part II Handbook requirements )
• the contingent buildings indemnity insurance policy should always be in favor of the bank and, wherever possible, in favour of the mortgagor and any subsequent owner or mortgage company. Where the borrower will not be covered by the contingent buildings indemnity insurance policy, you must advise the mortgagor of this fact.

Regarding the extent of cover for the contingent buildings indemnity insurance policy (or for that matter any indemnity insurance), consider the following sampling of Paragraph 9.2 of the UK Finance handbook PII requirements for mortgage companies:

General Contingent Buildings indemnity insurance points to consider

The full terms, conditions and exclusions for contingent buildings indemnity insurance are explained in the policy paperwork. Conveyancing solicitors are obliged to direct the borrower to the contingent buildings indemnity insurance policy itself. Contingent Buildings Contingency insurance is devised to grant indemnity in respect of the risks set out in the policy schedule - so it’s important to check any draft to determine that it is correct. The continuance of this non-investment insurance contract is in perpetuity unless the policy says something to the contrary. Again, please check that this is as you expected.

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Contingent Buildings Contingency insurance: Important features and benefits:

This policy would usually provide protection from financial loss that might arise in the event of a third party making a cliam in respect of the risks identified in the policy document. Contingent Buildings indemnity insurance Policies should be checked for the following

• Cover for compensation incurred in any proceedings in respect of the risks specified in the contingent buildings policy, as well as incurred costs and expenses.
• The cost of works (including architects’ and surveyors’ fees) for the purpose of the development begun, or contracted for, prior to proceedings for the enforcement of the risks specified in the contingent buildings insurance, to the extent that such costs are rendered abortive by court decision.
• Loss in market value resulting from the successful enforcement of the risks specified in the contingent buildings indemnity insurance.
• All other costs and expenses incurred by the Insured with consent in writing from the relevant insurance company
• The out of pocket expenses of altering or demolishing all, or part of the development and the reinstatement of the land, insofar as such alteration, demolition or re-instatement is made necessary by court order.
• All sums paid with consent in writing from the insurance company to free the property from the risks specified in the contingent buildings insurance.

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Due diligence should extend to checking that the answers on the application form are correct. Regardless of how remote a claim on the bank insurance policy might be you can certain that the insurer will check the details on any proposal form very carefully prior to any claim being met.

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Contingent Buildings Indemnity Insurance has limitations - Other considerations

Contingent Buildings Indemnity insurance isn’t a solution to all of the relevant problems.

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WhenIBought

Was contingent buildings insurance arranged because your lease left uncertainty over who must insure or reinstate the building? If that issue has resurfaced on a sale or remortgage, revisit what you were told when you bought. WhenIBought's defective lease page looks at problems with lease provisions, including insurance obligations, and offers a way to tell us what happened.

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The above information is in relation to properties in England and Wales.