To Insure or not to Insure? No longer a question

Traditionally when purchasing a property one of the most important things is to ensure that you have the property suitably insured from exchange of contracts as this is the point at which you become contractually bound to purchase the property and the risk passes to you.

Contracts can be varied to stipulate that the risk remains with the seller. This is often the case when the property in question is to be tenanted until completion, because the seller would be obliged to keep the property insured under the terms of any occupational tenancies or leases in fulfilling its role as Landlord.

In these circumstances then it would be a valid approach for a buyer to simply rely on the seller’s policy, but care must be taken when adopting this approach. A buyer must be certain as to the terms of the seller’s policy which may be problematic in itself as sellers may be reluctant to disclose policies, particularly if they are block policies covering a large number of properties.

This places a buyer in a precarious position as the policy may limit cover for certain types of risk, impose onerous conditions for coverage or contain large deductibles. Furthermore the insurer may be able to avoid payout altogether should the seller fail to provide full disclosure or misrepresent certain matters. This is all outside the control of the buyer.

A more practical point is that the buyer who is reliant on the policy will not be able to make a claim direct and would be reliant on enforcing contractual provisions against the seller to get the claim underway.    

Based on the above it would seem prudent for a buyer to arrange their own insurance as is usual practice. The most obvious drawback is the expense of the insurance premium which the buyer will have to pay out of his own pocket, but when measured against the potential loss if the seller’s policy is inadequate this will in all likelihood be a minor burden.

The concept of “double insurance” is a term which is often mentioned but seldom understood in any real detail. It is, however, something a buyer should bear in mind when obtaining an insurance policy, albeit the horror stories of policies cancelling one another out are being reduced by common sense prevailing.

Thankfully the general approach of the courts is that it is nonsensical that two insurance policies covering the same risk cancel each other out so as to leave the insured without cover but it is advised that a buyer reads policy wording very carefully to try and mitigate against double insurance issues arising. If two insurers are warring over who should be responsible for paying out this will inevitably cause delay to the issue at hand being remedied.

If you would like to discuss any of the issues mentioned above or have other questions relating to landlord and tenant situations please do not hesitate to get in touch.