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from JUST ASK (justask@btinternet.com)
The case you refer to is : Woolwich Building Society v Brown (13 December 1995, unreported)

So you will be lucky to find anything bar the odd statements here and there.

Following a case called Woolwich v Brown 1995 the Court of Appeal has decided that generally mortgage indemnity insurance only covers the lender and not the borrower so needless to say that the issue at hand was no doubt about the MIG.

I have found some information from the IOB (Insurance Ombudsman Bureau)can be found at http://www.theiob.org.uk/index.html, which might be of use here, please see below.

MORTGAGE INDEMNITY POLICIES

1. Negative Equity Trap There has been considerable publicity for a particular problem arising for unfortunate householders caught in the ' negative equity' trap. When they bought the house, they naturally took out a mortgage, and the lender required them to make an additional payment for a mortgage indemnity policy provided by an insurer. This was to cover any shortfall if the property had to be sold by the lender in the course of realising its security. Typically, these guarantees were required when the amount of the mortgage exceeded 85% or so of the value of the property at the time. The combination of economic pressures forcing more householders into arrears and of declining property values had led to insurers having to pay out on these guarantees. They then claim the right to recover the amount of such payments from the unfortunate householders (who have by then lost their homes). Such claims are by way of subrogation to the lender' s right to repayment of the debt. Householders in such circumstances complain that they thought they were getting the benefit of an insurance for which they were paying, and they ask me to determine whether they are entitled to that. The question which arises is whether we have jurisdiction to consider such complaints. The insurers concerned consistently maintain that we do not.

One basis on which such complaints could come within my jurisdiction would be if the indemnity policy concerned was for the benefit of the householder, as in the case of the group policies we have referred to above. However, to pursue that point, we need the agreement of the lender as policyholder, and so far no lender has been willing to agree to that.

A second possibility is to see whether the householder is himself entitled to be treated as a policyholder under the policy, so that the lender' s consent to my involvement is not necessary. It has been suggested in the press that, particularly in the case of some of the older indemnity policies, this may be the case. We have therefore begun asking the insurers concerned to send me the policy wording applicable in each case so that we can check for ourselves. In one case, where it was clear that the proposal for the policy had been made by the lender, and the terms of the policy made it clear that it was ' for exclusive benefit' of the lender, I was unable to hold that the borrower was entitled to a look in. The majority of cases appear to come into this category. However some cases are not so clear and there may be some in which, exceptionally we are able to exercise jurisdiction.

The third possibility is that the householder may have been given assurances by the lender that he or she would be covered by the policy. This may well justify a complaint of misrepresentation against the lender but it will not normally give rise to a justifiable complaint against the insurer. For that to be the case, we would need to be satisfied that the borrower had reasonable grounds for believing that the lender was acting on the insurer' s behalf in giving those assurances. We have not yet encountered any cases coming into that category.

On the whole, therefore, we are not able to do much for the unhappy borrowers in these cases, but we share the general concern over the issues they raise. Whilst we normally hesitate to comment on matters outside my jurisdiction, there are two points here which we suggest should be more fully addressed by the insurers and lenders involved. First, at the very least it need to be made clear to borrowers entering into these arrangements that the mortgage indemnity premium they pay is not something they are going to benefit from themselves, but is part of the price tag for obtaining the loan in the first place. As it is, particularly when the premium is lumped in by the lender with other premiums for household insurance and life assurances which the borrower will indeed be benefiting from, it is easy to see how confusing it all can be.

Second, we see no reason why borrowers should not be able to benefit from some form of cover in these situations. The common argument, as stated by Staughton LJ in The Mortgage Corporation v McNicholas (22 September 1992, unreported) is that no insurance company ' would be stupid enough to provide insurance in favour of individuals in the even of their not paying their debts. It would be a licence to claim money' . Surely it is not as simple as that. The indemnity is not simply in respect of the borrower' s failure to pay his debts, but is in respect of the security provided for such payment turning out to be of less value than either borrower lender thought at the outset. When all concerned act in good faith, the intention is that if the worst comes to the worst, the value of the house will be sufficient to discharge the borrower' s debt to the lender. Why should the borrower be unable to insure against the risk of this proving not to be the case? Many borrowers would no doubt be willing to pay whatever extra premium was required to make sure that they had the benefit of such cover. We hope these observations will add fuel to the continuing debate. Unfortunately, they only address the problem for the future. The present unsatisfactory situation remains. AR (94) p. 19

2. Practice The documentation for the MIG policies we have seen is often incomplete. Most of the policies provide for schedules to be prepared, specifying which individual loan transactions are covered by a particular policy. These schedules are generally non-existent. Nevertheless, such documents as there are establish that the borrower is not a party to the MIG insurance. We have our own opinion from leading Counsel on this point, as well as the one the Board obtained.

I have also seen an opinion from leading Counsel obtained independently by the Consumer' s Association, and opinions obtained by MIG insurers on their specific wordings. There have also been court decisions in individual cases [see, for example, the Mortgage Corporation v. McNicholas (unreported) 22 September 1992; Woolwich Building Society v Brown (13 December 1995, unreported) In my view, it is unlikely that a court would consider that the lack of complete documentation materially affects the basic nature of the contract. We were therefore not satisfied that we had jurisdiction in any of these cases, in the absence of specific evidence that a particular case constitutes an exception. There has been no such evidence in the 88 cases seen to date. AR (95) para 1.7.4 p. 20 3. Reference

(a) The Mortgage Corporation v McNicholas (22 September 1992, unreported)

(posted 7341 days ago)

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