CR127

Cession in securitatem debiti – who is to enquire about an alleged phantom cession?

Summary

Security cession – policyholder denies the insurer’s statement that she had agreed to the cession of the policy as security for a loan – insurer unable to obtain proof from the cessionary about the existence of the loan and the cession – cession on insurer’s books cancelled.

Background

When the complainant wished to take out a loan on her endowment policy she was informed that the policy had been ceded to X Bank as security for a loan; consequently, that a loan could not be granted to her on the strength of her policy. She complained first to the insurer and thereafter to us that she had never taken out a loan from the bank and in fact was unaware of its existence. She denied that she was ever a party to a cession of her policy to the particular bank as collateral security for any loan. The insurer responded that it had received notice from the bank that the policy had been ceded to it as collateral security and that it recorded the cession in its books and had notified the complainant accordingly. The complainant reiterated her denial that she had ever applied for or taken out a loan from the bank in question, that she was a party to a cession of her policy to the bank and indeed that the insurer had ever notified her to that effect. “I would have enquired long ago if I was informed” she said.

We wrote to the insurer that, in the particular circumstances of this case, “there is a duty on you (rather than on the complainant) to make further enquiries from the said bank’s successor in title about the existence or not of the alleged cession.”

The complainant in the meantime demanded that her policy be cancelled and that all premiums be refunded to her on the basis that she was sick and tired of being told about a non-existing loan from and cession to a bank of which she was unaware.

Discussion

As far as the complainant was concerned we pointed out that if in fact there was no cession it simply meant that the insurer was misled by the bank concerned; that that, in itself, does not invalidate the policy or entitle her to a refund of all the premiums paid. The best that can be achieved for her was to restore the status quo as if no cession had ever been recorded against her policy.

As far as the insurer was concerned we asked it to approach the successor of the bank concerned for confirmation or not that the complainant had in fact applied for and was granted a loan on the security of the said policy and that the complainant was a party to a collateral cession of such policy.

The insurer eventually responded copying us with their enquiries from the bank. The telephonic enquiries could elicit no information about the existence of such a loan or cession and when there was no written response by the date stipulated by the insurer for such information, the insurer confirmed to us that the cession recorded on their books would be removed and that the status quo would be restored.

Result

The status quo was accordingly restored.

PMN
April 2006