Bank had right to hold on to insurance money

Insurance policies,
Fred had two bank loans on his property, which was badly damaged in the Christchurch earthquakes. The bank, in its role as mortgagee, received several payments from the Earthquake Commission, which it used to reduce the size of Fred’s loans. It also lowered the limits on his loans.
January 2019

Several years later, Fred asked the bank for money to finance litigation against his insurance company. The bank told him to submit a loan application, which it declined for affordability reasons.

Fred said the bank had no right to use the Earthquake Commission payments to reduce his loans and asked it to release the money to him. The bank declined to do so.

Our investigation

We explained that a bank, as mortgagee, had a right to decide whether to use Earthquake Commission payments to reduce a customer’s loan or to keep the money to pay for eventual repairs. This was set out in his mortgage documents, and it was also spelt out in the Property Law Act 2007.


 Fred was disappointed but accepted our explanation.

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