When insurance isn't; Watchdog issues warning on mortgage insurance from banks, trusts

Mary Lamey

 

The Gazette (Montreal), September 7, 1995, Final Edition, p.D3

 

Consumers who obtain mortgage insurance or mortgage disability insurance through a bank or trust company could be in for a painful surprise when they file a claim on their policies, a provincial agency that monitors aspects of the insurance industry warned yesterday.

 

Even those who keep up their premium payments are not necessarily insured, said the Association des Intermediares en Assurance de Personnes du Quebec, known as the AIAPQ. The group, which monitors the actions of Quebec's 13,000 personal and life-insurance agents, released the results of a three-month inquiry into the sales of mortgage insurance through banks and other financial institutions.

 

The provincial government mandates the AIAPQ to enforce Law 134, which governs the conduct of insurance agents and others who sell financial products to the public. It is responsible for training and for enforcing a code of conduct.

 

Because of a gap in the law, however, the watchdog has no power over banks and financial institutions that sell mortgage insurance, mortgage-life policies or mortgage disability insurance.

 

In many cases, even though consumers provide information about their state of health and other pertinent details when applying to the bank, that information is frequently not forwarded to the insurers until a claim is filed.

 

In one case, a couple from the Eastern Townships who applied for mortgage insurance when they applied for a mortgage with the National Bank of Canada, included in their declaration that the woman was undergoing cancer treatment.

 

The couple paid insurance premium until the woman's death 22 months later. But the insurance company rejected the mortgage-insurance claims filed after her death, saying that the woman had not been insurable from the outset, even though the bank had issued a policy.

 

The surviving partner, Rejean Deslauriers, fought the insurance company for more than seven years, before the Quebec Court of Appeal ruled in the couple's favor. The court found that the couple had every reason to believe that they were insured and that the bank, as the insurance company's agent, was at fault. The Supreme Court of Canada refused to hear an appeal by the insurer.

 

The AIAPQ said it believes such cases would not occur if bank employees were under its jurisdiction. Bank employees are poorly trained and often unqualified to sell insurance, said Suzanne Hardy-Lemieux, the lawyer who led the association's inquiry.

 

"Bank employees should be held to a higher standard, to offer full disclosure to the public, to offer full information and advice," Hardy-Lemieux said.

 

She added that if placed under AIAPQ control, bank employees would also be obliged, as are insurance agents, to adhere to the code of conduct and to have personal-liability insurance.

 

When it set out to study the mortgage-insurance question, the AIAPQ searched for court rulings and came up with 38 cases heard at the appeals court or Supreme Court of Canada levels between 1981 and 1995. Records for the lower courts were not complete, she said.

 

But a spokesman for the National Bank said insurance problems in the banking industry are relatively rare.

 

"If you look at the number of transactions handled by Canadian banks on a daily basis, it's certain that you'll come up with a few cases where things have been badly handled, but they are the exceptions," said Pierre Desbiens, vice-president (insurance).

 

He refused to discuss the specifics of the Eastern Townships couple's case, but said that, generally, his bank forwards insurance applications to its insurance partners.

 

"If there is a problem with an application, the client will hear from the insurance company in a very short time. If there isn't, a certificate is issued."

 

Banks are placed in a double bind, because they are not allowed by law to hire licensed insurance agents or to refer clients to specific insurance companies, he added.

 

"I don't have any problem with hiring licensed intermediaries to distribute insurance products in our branches, but the law doesn't allow it. I don't think it's reasonable to expect every one of our employees to gain AIAPQ accreditation just in case they one day have to handle an insurance question."

 

The AIAPQ will continue to study the question of bank-offered insurance, and has begun a public-awareness campaign. Yesterday, the association set up a toll-free telephone number so that the public can recount its problems. It is 1-800-508-0811.

 

Copyright The Gazette (Montreal) 1995 All Rights Reserved.

 

 

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