Insuring a property after exchange of contracts

It is usual for a seller and buyer to insure a property during the period between exchange of the sale contract and completion.

Cheryl Phimister a Conveyancing Executive, explains “Usually the seller’s home insurance will still be in place as they still have legal title to the property, but they would potentially suffer a loss if the property suffers damage after exchange and the buyer does not complete the purchase.”

Cheryl goes on to say “The buyer will want to insure the property because they have an equitable interest in the property. If the seller has a mortgage, then they must keep the property insured.”

What is double insurance?

‘Double insurance’ arises when one person has the benefit of multiple insurance policies on the same property against identical risks. This is not advisable as it may lead to one or both policies being invalidated, or a restriction being imposed on what can be claimed under either policy.

This situation, where the seller and buyer both insured between exchange and completion, arose in a recent case which made it to the High Court.

National Farmers Union Mutual Insurance Society v HSBC Insurance

In National Farmers Union Mutual Insurance Society Ltd v HSBC Insurance (UK) Ltd, the buyer and seller each held their own buildings insurance between exchange and completion.

After exchanging contracts a fire caused extensive damage to the property but the sale completed according to the terms of the sale contract.

The buyer claimed under his policy with NFU who paid out in full and subsequently claimed a contribution from the sellers’ insurer HSBC on the basis there was ‘double insurance’.

Is there a legal obligation for the seller to insure a property after exchange of contract?

The High Court said that the HSBC policy excluded payment if the buildings were insured under any other insurance. The buyer was not covered by the HSBC policy and there was no resulting ‘double insurance’.

The court made it clear that policy wording will determine whether or not there is double insurance.

This case confirmed that there is no legal requirement for the seller to insure a property between exchange and completion. Common law provides that the risk in a property passes to the buyer on exchange of contracts unless the contract provides otherwise.