Why Do Conveyancers Argue Over Taking Out Legal Indemnity Insurance?
A selling lawyer and a buying lawyer have different agendas when the issue crops up.
- They may have handled the conveyancing for their client, yet missed the issue which now needs insuring, so are trying to bluster the buyer into dropping the issue.
- They may just want to protect/avoid their client in paying for it, mistakenly overlooking the fact that it is a reasonable request, thus creating an unnecessary delay
- They may believe that there is no legal issue, and thus no need for legal insurance
- They may feel unable to charge more for fixing the issue by feeling bound by their fixed fee – as arranging legal insurance is regulated activity by law firms, who must provide clients with legally prescribed ‘insurance distribution’ information, or face severe fines.
- They have identified an issue, which needs a solution, otherwise a legal risk is present to the client which they are not willing to recommend the client accept without protection by way of insurance, or which the relevant mortgage company will not lend against if it remains unresolved
- They are mistaken in their identification of an issue/risk warranting addressing by insurance (or at all)
True, legal indemnity insurance is relatively cheap, so you might argue that the seller might as well just pay it every time to keep the deal moving forward?
But solicitors in particular are professionally bound by their code of conduct to always act in their clients’ best interests, and as a result, the conveyancing lawyer must give proper detailed advice to their client, firstly about whether there is a legal defect at all (giving full clarity as to exactly what that is), and then the various options to help the client make an informed decision on how to address the buyer’s worry/request for insurance.
Yet that requirement can also lead to a conflict of interest though, as a client wishing to just pay for the insurance when there is simply no legal issue warranting it then a precedent for all future requests of that law firm, as well as perpetuating an inappropriate use of legal indemnity insurance and thus a stigma of conveyancers in general.
For example, how many conveyancers would seek legal insurance for lack of restrictive covenant consent for the erection of a conservatory 16 years ago. In fact, how many members of the public would think it necessary. Most would balk at this, and the Council of Mortgage Lenders (new revised handbook) states a clear certificate of title is always acceptable whatever the age of the breach. So using a mortgage company as an excuse is not appropriate. But my example is of a situation where a law firm was delaying in their request for insurance, to the delight of the insurer of course, to the delight of the estate agent to just get the deal through, but to the frustration of the seller to have to cave in and pay it.
The moral might be that conveyancers should sharpen up their legal knowledge and not ask for insurance in the first place where it is not due, but all too often a buyer’s lawyer will argue “but on a resale, we may face a conveyancing outfit who is unable to apply any legal training, and who won’t progress without insurance”. A sorry state of affairs, but a real one.
So a double reason for all conveyancers to ensure they sharpen up their legal knowledge which clients should expect, and to expose clients to far less legal insurance in the first place. £ms if not £bs trade hands each year in the legal indemnity insurance market. The public deserve better.