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Irish Nationwide Building Society v. Malone [1998] IESC 58 (10th December, 1998)

THE SUPREME COURT

RECORD No 90/97

O‘FLAHERTY J

LYNCH J

BARRON J

BETWEEN:

IRISH NATIONWIDE BUILDING SOCIETY

PLAINTIFF/APPELLANT

AND

EILEEN MALONE

DEFENDANT/RESPONDENT

Between:

EILEEN MALONE

PLAINTIFF/RESPONDENT

AND

IRISH NATIONWIDE BUILDING SOCIETY

DEFENDANT/APPELLANT

JUDGMENT DELIVERED THE 10TH DAY OF DECEMBER 1998 BY LYNCH J. [Nem. Diss.]

1. This is an appeal by the Irish Nationwide Building Society ( hereinafter called the Building Society), the Plaintiffs in Special Summons proceedings issued on the 12th of December 1990 and the Defendants in Plenary Summons proceedings issued on the 17th December 1990 against a judgment and order of the High Court (Costello P) delivered and made on the

26th February 1997 whereby the Building Society’s claim by way of Special Summons was refused and the Respondents claim by way of Plenary Summons was granted.

2. The Building Society’s claim was for possession of premises situated at Rathmoylon, County Meath, in which the Respondent resides and the Respondent’s claim was for a declaration that she is relieved of any liability whatsoever to repay to the Building Society any sums outstanding on foot of a loan of £100,000 made by the Building Society to the Respondent and her late husband Sean Malone on the 21st April 1989. The said proceedings were consolidated by Order of the High Court made on the 13th of December 1993. The consolidated proceedings were heard by Costello P on Friday the 21st and Tuesday the 25th February 1997 and judgment was delivered on Wednesday the 26th February 1997.

THE FACTUAL BACKGROUND

3. The litigation arises out of the tragic sudden death from a heart attack of the Respondent’s late husband Sean Malone (Mr Malone). The Respondent and Mr Malone had at the time of the events giving rise to the litigation four children ranging in age from about 16 years to 10 years. Mr Malone had for many years been a bank official in the Bank of Ireland in Trim, County Meath. He took early retirement at the age of 47 years in the beginning of 1989 and he and the Respondent purchased the premises the subject matter of these proceedings with a view to carrying on a supermarket and licensed business and residing on the premises.

4. The Respondent and Mr Malone sought a loan in the sum of £100,000 from the Building Society to enable them to purchase the premises. One of the conditions of obtaining a loan from the Building Society was that a Mortgage Protection Assurance Policy should be taken

out by the borrower with an insurance company nominated or approved by the Building Society. The Respondent and Mr Malone sent a mortgage application form signed by them and dated the 8th of February 1989 to the Building Society on that date in which the premises are described at paragraph 19 as a residence, licensed premises and supermarket. Paragraph 23 with a side reference of “mortgage protection assurance” provided that “in the case of a repayment mortgage, as a further condition of advance, mortgage protection assurance will be arranged with a suitable life office. The premium will be charged to the mortgage account annually, payment of which will be included in your monthly mortgage repayments “.

5. Above the signatures of the Respondent and Mr Malone, there was a section headed “Declaration” which inter alia provided:

“We hereby declare and agree:

(g) That any of the information contained in this application may be sent to an appropriate insurance company for the purpose of arranging

(3) Mortgage protection assurance.”

6. A further application form headed “Irish Nationwide Building Society” and entitled “Application for Mortgage Protection Assurance” and stating at the foot of the title page “Caledonian Insurance Company 40 Dawson Street Dublin 2” was signed by the Respondent and Mr Malone and also dated the 8th February 1989 and was sent by them to the Building Society along with the said loan application form. By this mortgage protection assurance application form the Respondent and Mr Malone applied for the mortgage protection

assurance as required by the application form to the Building Society for the loan. The 8th February 1989 was a Wednesday so that the said loan application form and mortgage protection assurance application form must be presumed to have been received by the Building Society at the latest by Friday the 10th February 1989 and no issue arose as to this.

7. By a letter of offer dated the 19th of March 1989 the Building Society sanctioned the mortgage facilities in the sum of £100,000. The letter of sanction provided inter alia “To reserve sanction, the attached letter must be signed and returned to the society together with the mortgage fees within 14 days from the date of this notice. No extension of this period will be granted”. It further provided “This offer is also subject to the legal title proving satisfactory, to the conditions and terms set out below and to the rules of the society”. Condition (e) provided ‘that the borrower (s) effects a mortgage protection assurance policy through the society’s agency in the amount advanced”.

8. A sum of £1,000 was charged by the Building Society and was paid as required: the returned letter is signed by the Respondent and Mr Malone under the following concluding paragraph:

“We hereby accept the offer contained above, subject to the terms and conditions as set out above. We have satisfied ourselves that the rate quoted is not a tiered rate, as defined in the Building Society’s (Amendment) Act 1986 and enclose the sum of IR£1,000 being the total mortgage administration fee payable to the society inclusive of any liability to VAT.”

9. The normal procedure for obtaining a loan from the Building Society was that as soon as the Building Society had decided to sanction the loan requested by the application form, they would send to the applicants a letter of offer (in this case the letter of the 10th March 1989) and at the same time the Building Society would send to the insurers (in this case the Caledonian Insurance Company) the mortgage protection assurance application form, so that the mortgage protection assurance could be put in place prior to draw down of the loan. In this case the mortgage protection assurance application form was not forwarded to the Caledonian Insurance Company by the Building Society at the same time as the letter of offer was sent to the Respondent and Mr Malone and it was not in fact posted to the Caledonian Insurance Company until the 7th April 1989 and received by the Insurance Company on the 10th of April 1989. It was conceded by the Building Society that they were at fault in this regard.

10. The Respondent and Mr Malone were anxious to complete the purchase as soon as possible and in fact the closing date became crystallised as the 13th of March 1989. The loan by the Building Society had just been sanctioned but was not yet available, nor could it normally become available until the mortgage protection assurance policy was in place. In the mean time the Respondent and Mr Malone completed the purchase on the 13th March 1989 and entered into possession of the premises on the 13th of March 1989 relying on bridging finance from the Bank of Ireland Trim pending draw down of the loan. Draw down was of course being delayed by the fact that the Building Society had overlooked forwarding the mortgage protection assurance application form to the insurers until the 7th of April 1989. Eventually the Building Society agreed that the loan could be drawn down in anticipation of the mortgage protection assurance policy provided that the Respondent and Mr Malone signed forms which they did sign the first form dated the 20th of April 1989 in manuscript

and a further form dated the 21st of April 1989 in typed script on a sheet of paper headed with the Building Society’s name. The forms read as follows:-

“Rathmovlon Enfield County Meath 20-4-8 9

INBS Dublin

We undertake and agree to co-operate with Galedonian Insurance Co. to facilitate effecting the mortgage protection policy.

Yours faithful/v

Sean Malone

Eileen Malone’

“21 April 1989

We. Sean and Eileen Malone, acknowledge that there is no life cover in force on both of our live [sic] with the Caledonian Insurance Company.

We agree to co-operate fully with any request that the Caledonian Company might make in order to get life cover at the earliest possible time.

Sean Malone

Eileen Malone”.

11. The loan was then drawn down in or about the 21st of April 1989 but little or no progress was made regarding the issue of the mortgage protection assurance policy by the Caledonian Insurance Company through the agency of the Building Society. The application form for the policy contained provisions whereby the Respondent and her husband consented to information on their health being furnished by their respective general medical practitioners,

in Mr Malone’s case Dr Burke. The insurance company wrote on the 12th of April 1989 to both general medical practitioners and received a reply from the Respondent’s doctor but the insurance company say they received no reply from Dr Burke despite a reminder sent to him on the 26th of June 1989. It is not suggested that there was any communication between the insurance company or the Building Society and Dr Burke in the intervening two and a half months between the letter of the 12th April and the reminder of 26th June 1989.

12. Evidence was adduced at the trial that Mr Malone was a very prompt and meticulous person in attending to business matters. The insurers wrote to the Respondent and Mr Malone jointly on the 12th April 1989 inquiring if they would be involved in the sale of alcohol: on the 30th of June 1989 they inquired if the Respondent and Mr Malone would be involved in the running of the business and on the 18th of July 1989 they repeated the latter inquiry. The letter of the 30th of June was addressed to the Respondent’s and Mr Malone’s former residence which by then they had both left and there was no evidence that that letter was ever received by them. The other letters were received. The answers to these queries as to the sale of alcohol and as to being involved in the running of the business were long since within the knowledge of the Building Society as well of course the Respondent and Mr Malone. As already stated Mr Malone died suddenly on the 29th of July 1989 from a heart attack and before the mortgage protection assurance policy had issued.

THE SUBMISSIONS

13. Counsel for the Building Society submitted:

1 The Malones accepted the loan at their own risk so far as mortgage protection assurance was concerned and they so acknowledged by the documents of the 20th and 21st of April 1989. No duty of care was owed by the Building Society to the Malones in relation to mortgage protection assurance after the 21st of April 1989.

2 There is no causal link after the 21st of April 1989 between the Building Society and the Malones regarding the absence of mortgage protection assurance. Furthermore, the failure of the Malones and Dr Burke to attend to the requirements of the insurers constituted an intervening act which was solely responsible for the absence of mortgage protection assurance on the death of Mr Malone. The Building Society had no control over these matters which concerned the insurers and the Malones and the Building Society cannot be responsible for them.

3 Apart from the failure of Dr Burke to reply, the insurers required a medical examination of both the Respondent and Mr Malone and no progress was made in that regard either.

4 If there remained any responsibility on the Building Society in relation to mortgage protection assurance there certainly was a preponderance of contributory negligence on the part of the Malones in failing to respond to the requirements and inquiries of the insurers.

14. Counsel for the Building Society referred to MacGillivray on Insurance Law: McCann & Cummins v. Brinks Allied Ltd & Ulster Bank Ltd [1997] 1 ILRM 461: McMahon & Binchy Irish Law of Torts 2nd Edition page 45-48: Crowley v. Allied Irish Banks [1987] IR 282 : and Conole v. Red Bank Oyster Company [1976] IR 191 .

15. Counsel for the Respondent submitted:

16. I. The Building Society required that the Malones should employ them as their agents to arrange the appropriate mortgage protection assurance and the remuneration for the Building Society’s services as such insurance agent was included in the sum of £1,000 provided for by the letter of offer of the 10th March 1989 and indeed a further sum of £300 was also charged to the Malones by the Building Society.

2. The duty of the Building Society as such insurance agent was to attend to the progress of the application for such assurance and to pursue it diligently. All that the Building Society in fact did was to forward the mortgage protection assurance application form by the Malones to the insurance company and even in doing that they were guilty of serious and inexcusable delay.

3. The Building Society was pressed to see to the completion of the mortgage protection assurance by the Malones’ solicitors in letters of the 13th of March, 16th of March and 18th of April 1989 and in other letters such as the 14th of March 1989 the early closing date was emphasized and the need for urgent attention to all outstanding matters.

4. After the 21st of April 1989 the Building Society did absolutely nothing to progress the mortgage protection assurance. The Building Society were not waiving the requirement on the Malones to enter into a mortgage protection policy which was required by their letter of offer: they were merely waiving the necessity to do so before draw down of the loan. They completely neglected their duties as the Malones’ insurance agents to progress the insurance diligently. In addition they neglected for over a month to forward a direct debit mandate which if it had been forwarded as it ought to have been would have resulted in insurance premiums being paid in advance of the formal extraction of the policy. The Building Society also failed to inform the insurers that the premises were a licensed premises which the Malones would be involved in running although the Building Society was well aware of those facts from the very beginning and thus inquiries from the insurers related to these matters issued months after the receipt of the loan application form dated the 8th of February 1989 by the Building Society.

5. Insofar as the learned trial Judge found that Dr Burke neglected to return the form sent to him on the 12 of April 1989 and a reminder of the 26th of June 1989 this was not the responsibility of the Malones. The application form for mortgage protection assurance asked for the name and address of the general medical practitioner. This was supplied by the Malones and the insurers contacted the general practitioner. This does not make the general practitioner the agent or nominee of Mr Malone. Moreover it is extraordinary that the insurers by way of internal memorandum dated the 27th of June 1989 decided that they required medical examinations from both the Respondent and Mr Malone but they do not appear to have communicated this requirement either to the Malones or the Building Society before the unfortunate death of Mr Malone a month later. If the Building Society had been diligent in progressing the matter of the mortgage protection

assurance policy as the Malones’ insurance agents for that very purpose such an extraordinary state of affairs could not have arisen. Their duty was to keep in touch with the insurance company so as to be aware of any requirements of theirs and to communicate such requirements to the Malones so as to make sure that they in turn fulfil them.

6. The Malones were not guilty of any contributory negligence. They had appointed the Building Society as their insurance agents and the Building Society had held itself out as having a special relationship with the Caledonian Insurance Company to effect the mortgage protection assurance. The Malones through their solicitors had impressed on the Building Society the urgency of progressing matters including the mortgage protection assurance and on the 21st of April 1989 the Malones were led to believe that things which had held up the matter up to then were being sorted out and that the procuring of the assurance cover would proceed without further delay as deposed to by the Malones solicitor at questions 324 to 327 of the transcript.

17. Counsel for the Respondent referred to MacGillivray on Insurance Law in relation to the duties of an insurance agent to his client the prospective insured and distinguished on the facts the cases cited by Counsel for the Building Society from this case.

CONCLUSIONS

18. By the terms of their own documentation the Building Society had themselves appointed as insurance agents for the Malones for valuable consideration to arrange the mortgage protection assurance policy. The Building Society was manifestly negligent as such agents in not forwarding the mortgage protection assurance application form to the Caledonian Insurance Company until the 7th of April 1989. They were aware of the closing of the purchase of the premises on the 13th of March 1989 and furthermore that that involved the Malones in obtaining bridging finance and nevertheless the mortgage protection assurance application form was not dispatched by them for another three weeks thereafter. The Building Society seemed to think that their only function as the Malones’ insurance agents was to forward the mortgage protection assurance application form to the Caledonian Insurance Company once they themselves had sanctioned the loan and that thereafter they had no further involvement or obligation in arranging the insurance. The Building Society seemed to take the view that thereafter it was a matter solely between the Caledonian Insurance Company and the Malones. This was quite wrong. The evidence clearly established what the normal duties of an insurance agent are (as accepted and enforced by the law) and those duties include close attention to the progress of the matter until it is completed or abandoned.

19. The Building Society say however that they were relieved of any further responsibility for arranging the insurance in this case by the documents of the 20th and 21St of April 1989 signed by the Malones. There is nothing in either of those documents to that effect. All that those documents did was to make sure that the Malones were aware of their uninsured life status notwithstanding authority from the Building Society to draw down the loan and to

remind the Malones that they had an obligation to co-operate with the Caledonian Insurance Company in completing the insurance. The Building Society still remained under an obligation to keep in touch with the Malones and the Caledonian Insurance Company in order to ensure as far as a possible that the matter was progressing and was not sliding into inertia.

20. It is really quite extraordinary that an application for mortgage protection assurance is duly and properly completed by the Malones on the 8th of February 1989: is in the hands of the insurance agents (the Building Society) by the 10th of February 1989 and yet by the 29th of July 1989 some five and a half months later the only things that have happened in relation to completing the mortgage protection assurance policy on Mr Malone are:

21. I. The application form was forwarded to the Caledonian Insurance Company on the 7th of April 1989 and received by them on the 10th of April 1989. No dispute arises as to these dates.

2. Mr Malone’s general medical practitioner Dr Burke was sent a form on the 12th of April 1989 by the Caledonian Insurance Company to be completed by him and returned to the insurers and not having done so he was sent on the 26th of June 1989 some two and a half months later one and one only reminder.

3. Mr Malone was sent a letter by the insurers on the 12th of April 1989 inquiring whether the Malones would be involved in the sale of alcohol: they were sent a further letter dated the 30th of June 1989 addressed to their former dwelling house which by then they had long since vacated inquiring whether the Malones would be involved in running the business: and they were sent another letter with the same inquiry addressed to them at

the premises on the 18th of July 1989. In relation to these letters sent by the Caledonian Insurance Company to the Malones the learned trial Judge found as follows:

“The evidence satisfies me that Mr Malone who was a man aged forty-seven, an assistant bank manager and in very good health was a vigorous efficient person and the evidence satisfies me that he did not receive the letter of the 30th of June which was sent to the address at Pine Brook because he and his wife had left it then but that he had received the letters of the 12th of April and the 18th of July. The letter of the 18th of July enclosed a stamped addressed envelope: the stamped addressed envelope was not in his papers when he died and lam quite satisfied that he must have attended to the request for information. The evidence in relation to the medical aspect of the insurance is this: in the normal way the Caledonian Insurance Company would require the insured’s general practitioner to answer a form of questionnaire sent to him. The form was sent to Dr Burke on behalf of Mr Malone and to Dr Cusack on behalf of Mrs Malone on the 12th of April. Dr Cusack replied on the 28th of April but Dr Burke did not. A reminder was sent to him on the 26th of June but the evidence of the insurance company is that he failed to send the questionnaire back to it. This was the situation when Mr Malone unfortunately died. Thus there are two causes for the delay in effecting the insurance. The Caledonian had obtained on the 10th of April the application form and on the 29th of July following, three and a half months later no insurance policy had been issued. The reason for the failure to effect the insurance at the time was the fact that Dr Burke’s report on Mr Malone had not been made available to the Society. Dr Burke thinks he sent it but I am not satisfied on this point.”

22. There was ample evidence in the course of the trial to support the foregoing findings of the learned trial Judge and I would not interfere with them.

4. The Caledonian Insurance Company had decided within its own staff as revealed by the internal memorandum of the 27th of June 1989 that they required to have a medical examination of both the Respondent and Mr Malone. In relation to this the learned trial Judge found as follows:

“The Caledonian Insurance Company had come to the conclusion that it required a medical examination because it had ascertained that alcohol would be sold on the premises. It is of some considerable significance that this condition that was raised in the course of the application for insurance was not referred to by any officer of the Caledonian to the Malones and at no time were the Malones told they would have to undergo a medical examination or at no time was Dr Burke told or Dr Cusack told a medical examination was required nor did the Caledonian inform the Nationwide Building Society and the evidence establishes that the officers of the Building Society did nothing to effect this condition which was a requirement before the policy of insurance could be effected.”

23. Again, there was ample evidence to support these findings of the learned trial Judge and I see no reason to interfere with them.

24. Apart from the matters mentioned in the foregoing four paragraphs absolutely nothing else happened in relation to completing the mortgage protection assurance policy in the five and a

half months between the 8th of February 1989 and the 29th of July 1989. The learned trial Judge found as follows:

“I am quite satisfied that the Building Society did not exercise due care and skill in its capacity as agent for the Malones. There was in my view a breach of the duty prior to the drawing down of the loan on the 21st of April. The application for insurance should have been sent on the 10th of March and it was not. It is accepted that this was contrary to its practise and it is said there is no excuse for this and it was due to an advertance but it amounts to a breach of duty to the Malones in my opinion to use due diligence because it was obvious to everyone at the time that the question of the mortgage protection assurance was a matter of priority in order that the sale could take place. After the 21st of April over three months elapsed after the loan (recte the purchase) had been closed and the Building Society took no steps to contact the Caledonian with a view to ensuring that the policy was effected In my view they had a duty of care to their clients the Malones to ensure that the policy was taken out and to exercise due diligence to see it was taken out. In fact the evidence clearly establishes that no effective steps of any sort were taken by the Building Society to see that the policy was taken out. The expert evidence in the case establishes what the duty of care was what was involved in the duty of care and the 0 duty of care, did involve following up the insurance company that was effecting the insurance to see that it was done with due dispatch and there were no proper steps to do what the duty required them to do and lam quite satisfied also that had due diligence been used that the policy would have been effected upon Mr Malone prior to his death. Had due diligence been exercised the situation which had developed would have been found out immediately, namely that tire insurance company was looking for

a medical examination and Dr Burke had not apparent/v replied to the questionnaire this would have been rectified in my opinion and the policy would have been effected.”

25. Again there was ample evidence to support these findings and there is no basis upon which I should or would interfere with them. Indeed they are findings with which I find myself in complete agreement.

26. Finally, on the question of contributory negligence the learned trial Judge said:

“I cannot agree with these submissions. I think they are based on a misconstruction of the two letters to which I have referred There was clearly no waiver of any claim that might exist at that time, there was no undertaking, as has been suggested that the Malones would themselves obtain a policy from the Caledonian. What they had agreed to was that they would co-operate with Caledonian which is something entire/v different and which I think was complied with. lam quite satisfied that the Building Society continued to act as the Malones agent after the 21st of July (recte April): that they continued to owe a duty of due diligence after that date and for the reasons already given they failed in it. There was in my view no contributory negligence on the part of Mrs Malone. I have indicated my acceptance of the evidence related to the request of Mr Malone, lam convinced he would not have ignored the request for information which was sent to him and I find no ground to suggest there was any contributory negligence to the loss.”

27. Again, in my view, the evidence adduced at the trial amply supports the foregoing findings. Accordingly I would dismiss the Building Society’s appeal in this case.