QUESTION:
Whose responsibility is it now to notify banks if there is a mortgage or finance on a policy that is cancelled due to non-payment?
Decades ago there used to be an agreement between insurance companies and banks called the Continuous Agreement whereby in exchange for banks paying the unpaid premium to the insurance companies, the insurance companies would keep the bank continuously covered under the insured's (mortgagor's) policy to the extent of its interest (the amount outstanding under the bank’s loan). I have seen a copy of the document and none of the names of the insurance companies or banks who signed it are still trading. So it is a dead letter.
If anyone is obliged to tell the bank that the policy has been cancelled for non-payment, it is the insured (mortgagor). Under the mortgage document the insured agrees to keep the security insured, otherwise the principal sum becomes immediately repayable in full. There will be an obligation to advise the bank if this is ever the case.
The broker is the agent of the insured and has duties to the insured to look after the insured's interests. If the insured fails to pay the premium and a cancellation notice is issued by the insurer, assuming the broker knows about this, the broker owes a duty to the insured to advise the insured of the consequences of the cancellation. Not only will the insured no longer be covered, but the balance of any money repayable under a mortgage will become immediately due in full.
Having advised the insured of these consequences, the broker has discharged his obligations as agent. It is then for the insured to decide what action he will take.
