Articles & Cases

Mortgage Broker Liability

October 31, 2005

LIABILITY OF THE MORTGAGE BROKER

The Ontario Superior Court of Justice considered the duties of a mortgage broker where there had been a failure to obtain mortgage insurance. The mortgage broker, Paul Eckmier, had arranged financing for a condominium purchase by the Plaintiffs, Mr. and Mrs. St Louis. The mortgage broker had also met the Plaintiffs prior to closing and discussed mortgage financing. While the mortgage broker was not a licenced insurance broker, he had nevertheless arranged policies in the past and had received finder’s fees.

The Plaintiff wife alleged that they had requested mortgage life insurance and were informed by the mortgage broker that the cost of coverage was included in regular mortgage payments. The Plaintiff husband unfortunately died some time thereafter and it was then discovered that there was no mortgage life insurance in place. The Plaintiff wife and the husband’s estate brought an action for damages against the mortgage broker and his employer and the court held that the mortgage broker was negligent and his employer was vicariously liable.

The court found that there had been a number of meetings between the broker and Mr. and Mrs. St. Louis. The broker said that at the first meeting he would have told the clients they would be reviewing mortgage life insurance and that at the next meeting they would be required to sign to accept or waive such coverage. He testified that at the second meeting a mortgage life insurance application was presented from Manulife Financial. Mr. Eckmier testified that Mr. and Mrs. St. Louis were unsure of whether to accept such coverage and wanted to think about it. Mrs. St. Louis, however, testified that they specifically asked for the mortgage life insurance and was informed that the cost of coverage was included in the regular payment. A completed Manulife Financial form was, however, not produced and the court concluded that in all likelihood it was never completed.

Mr. Eckmier further testified that there was a third meeting on which occasion he said he informed Mr. and Mrs. St. Louis that Firstline would be sending a mortgage life insurance form to their lawyer and they would have to sign to accept or decline coverage. As to the Manulife policy, he said Mr. St. Louis was still undecided. Mrs. St. Louis did not recall a third meeting but acknowledged such was a possibility although she denied there was a discussion on these items.

The lawyer handling the purchase and mortgage testified that he was not involved with any mortgage life insurance application, and, in fact, he said he had no recollection of even discussing such with Mr. and Mrs. St. Louis. Further, he stated he did not have any documents in his file involving any such insurance. Mr. Eckmier in his testimony referred to his file folder. While he did not keep notes as events occurred, there was a reference on the folder indicating the mortgage life insurance was declined. He said he made that note as a result of a telephone conversation with Mr. St. Louis who indicated the premiums were too expensive.

Mr. Eckmier also testified that he forwarded a waiver to Mr. St. Louis to decline the mortgage life insurance and followed up with several phone messages when it was not signed and returned. Mrs. St. Louis stated she never saw such a waiver and there were no telephone messages from Mr. Eckmier and further that Mr. Eckmier had never spoken to her about this insurance, or waiver, since their meetings. Mr. Eckmier was of the view that an oral communication by only one of the parties was sufficient.

The court found that Mr. and Mrs. St. Louis were not sophisticated in business or financial matters. They were of modest means and this was their first real estate transaction. On the other hand, the court found that Mr. Eckmier was an experienced mortgage broker or, at least, had arranged numerous mortgages in the past. He was well aware of the background of Mr. and Mrs. St. Louis, particularly their lack of knowledge about mortgages. They had put their trust and confidence in Mr. Eckmier and they became his clients. The court found that the mortgage broker and client relationship, in these circumstances, were clearly fiduciary in nature.

While Mr. Eckmier was not a licensed insurance broker, he had however arranged policies in the past and received finder’s fees. He routinely recommended mortgage life insurance, a common practice in the financial industry. Such insurance was recommended to Mr. and Mrs. St. Louis but the coverage was not arranged. Further, a waiver, routinely used when coverage is declined, was not signed.

The court further found that while Mr. Eckmier said he mailed a waiver form to Mr. St. Louis, if it was so important, it would have been more logical and consistent with Mr. Eckmier’s duties to personally call on the client to obtain a signature in the same manner as he had done throughout the mortgage broker application process. He made no mention of discussing this matter with Mrs. St. Louis and only referred to a conversation with her late husband. The court stated that Mr. Eckmier was aware that Mr. and Mrs. St. Louis were both clients and joint instructions were required and “to suggest only one of the clients could provide binding instructions defies logic and common sense”.

The court, in considering the facts of the matter and the law related thereto, held that Mr. Eckmier was negligent and that he owed a duty to his clients which, amongst other things, included a duty to inform. He found that the error was an act of omission but not an abuse of trust and loyalty and that the loss arose out of the negligence of Mr. Eckmier and not by a breach of his fiduciary duty.

The court also found that Mr. Eckmier had a duty of care arising out of the mortgage broker and client relationship, that he represented to Mr. and Mrs. St. Louis that they had mortgage life insurance or, at least, led them to believe such was the case and failed to inform them otherwise, and that they relied on his advice and representation. In addition, the court also found Mr. Eckmier’s employer to be vicariously liable.

Henry G. Blumberg is the managing partner of Blumberg Segal LLP, Barristers & Solicitors, of Toronto. He can be reached at 416-361-1982 or henry@blumbergs.ca