A recent decision by the Ontario Superior Court emphasizes the importance of
having life insurance protection for mortgages, and of arranging coverage with
an insurer independent of the mortgage lender.
David and Therese St. Louis were inexperienced homebuyers when they purchased
an $82,000 condominium in Kitchener on the last day of 1996. At the time, they
were 50 and 42 years of age.
David and Therese had been referred to Paul Eckmier, a mortgage broker
employed by Tristar Funding Corp., which operates The Mortgage Centre. Eckmier
arranged financing through Firstline Mortgages, a branch of CIBC Mortgages
Inc., and he or his company received a brokerage fee of $798.34 from Firstline.
David was subsequently diagnosed with cancer and died on Nov. 19, 2000.
He had one life insurance policy for $50,000, which was paid soon after his
death, but when Therese called the mortgage broker to inquire about the
mortgage insurance she thought had been purchased, she discovered the policy
was never arranged.
The dispute went to court. It came up for a two-day trial last April before
Justice Donald Gordon.
Therese claimed she and her husband had requested mortgage life insurance from
Eckmier, and were told that the premium was included in their mortgage
Eckmier said he met with David and Therese three times before closing. He told
them that Firstline would send mortgage forms to their lawyer and they would
have to accept or decline coverage in his office.
Eckmier was a licensed mortgage broker but not an insurance agent. He did not
discuss obtaining or waiving the insurance issue with Therese. Her husband
told her that it was arranged and the mortgage would be paid off if anything
happened to him.
It turned out that neither an application for insurance nor a waiver of
coverage was ever signed by the husband and wife. Relying on assurances from
Eckmier, they believed insurance was in place.
In June, Gordon released his decision, which awarded the widow the full amount
of the mortgage as of her husband's death, plus interest after that date, and
The court ruled that, since Therese was not informed in a "clear and accurate
way" that no life insurance was in place, she was entitled to rely on her
reasonable assumption that they did have insurance.
The St. Louis case illustrates that something is wrong with the consumer
protection regime in this area. There is a perfectly good licensing program in
place for life insurance agents, but the law unfortunately allows mortgage
brokers and bank employees with little or no training or experience in the
area to market life insurance to borrowers.
Banks and other mortgage lenders routinely send life insurance forms to
lawyers, to be presented to their clients when signing mortgage documents, but
lawyers are not trained or licensed to sell or explain life insurance
It is not appropriate for real estate lawyers to have to ask their clients to
fill out a detailed health questionnaire while they are signing documents for
a home purchase and have other concerns in mind.
In my view, lawyers are the last people banks should ask to market their life
Invariably, I am forced to advise my clients to obtain a third-party life
insurance policy to pay off their mortgage for several reasons:
insurance needs should be carefully analyzed by a trained salesperson.
that only pays off the mortgage and nothing else may not be enough for the
needs of the survivors.
insurance agent will compare coverage and prices with different providers.
Financial institutions only offer one option at one price.
life insurance declines in coverage with the mortgage balance, while family
needs often escalate with inflation or other factors.
life insurance is not transferable if the borrowers change lenders at the
maturity of the loan. If they are no longer insurable for health reasons, they
may not be able to get any coverage anywhere.
Bob Aaron is a Toronto real estate lawyer. He can be reached by e-mail at firstname.lastname@example.org,
phone 416-364-9366 or fax 416-364-3818. Visit http://www.aaron.ca