Insuers obligation to notify mortgage lender of lapsed cover

Compliancegirl

I have a question regarding my insurance cover and my lenders interest. At exchange I have to effect buildings insurance with my lenders interest noted, and a copy of this has to be provided to the solicitor.

What happens if a few months after completion I decide to lapse the policy? Is the insurance company legally obliged to inform my mortgage lender of the lapse? I know that as 'good practice' a number of insurers make this notification, but I also know that a number dont. I also know that a lot of lenders are not bothered about being informed.

Can the insurance company be taken to court or fined by a lender whose interest they are aware of, but who they havent advised that the policy has cancelled?

benjaminM

Compliancegirl wrote: »

I know that as 'good practice' a number of insurers make this notification, but I also know that a number dont. I also know that a lot of lenders are not bothered about being informed.

I think you have just about summed it up there! It all depends on the lender and the insurer. Some lenders are very strict about having the interest noted on the policy some dont care.

I'm not sure whether any lender would take legal action though, not heard of that before. I know some lenders that penalise their borrowers for not providing their insurance schedule each year on renewal, on time! One lender in particular will fine £25 and insist that you take their cover, cheeky monkeys!

In a lot of cases it is the policyholders responsibility to inform any new insurer of an interested party.

I think that if you changed your policy after completion you should inform the lender and advise the new insurer of the interest.

If, however, you did not, in all honesty, I doubt anyone would find out or bat an eyelid.

huckster

Compliancegirl wrote: »

Can the insurance company be taken to court or fined by a lender whose interest they are aware of, but who they havent advised that the policy has cancelled?

There are some lenders that want their interest officially noted on the policy. Some also ask the Insurers to complete a form, requiring the Insurers to notify them following various events. e.g. Cancellation/lapsing of cover, claims over a certain value. Some of the things agreed between Insurers and lenders can be found in the Council for Mortgage Lenders (CML) handbook. Insurers are often asked whether the cover they provides meets with their requirements, as set out in the CML handbook.

I have not heard of any lender taking an Insurer to court, because the Insurer has failed to comply with any particular requirements that they may have asked for at the outset.

The onus is always on the mortgage account holder/Insurance policyholder to make sure that they are complying with any requirements. Most lenders will have contingency type cover, which would come into effect, if the mortgaged property was damaged severly and there was no other Insurance in place. It is also likely that the lender would take legal action against the mortgage holder to recover any sums to pay to rectify damage to the property.

I have seen a few cases where this has happened. I don't think people realise the potential risk of not having Buildings Insurance, when they have a mortgage. It can be bad enough losing your home in the event of total loss, but then to have the mortgage lenders, together with their contingency Insurers, chasing after you for every last penny; dread to think how this would feel. Some people have literally gone into hiding when this has happened.