For the first time since the Office of the Banking Adjudicator was established, a bank appealed against one of the adjudicator's recommendations last year.
In his annual report for 2001, Neville Melville, the adjudicator, said a trust obtained a mortgage bond from a bank to partly finance a property. Subsequently, the trust arranged for another bank to take over the bond.
The trustees completed proposals for insurance cover on the property at the office of the second bank's attorneys. This insurance policy remained in force for a short time after the bond was transferred to the second bank. The property was damaged in a flood after the cover lapsed.
The second bank rejected the trust's insurance claim on the basis that there was no cover on the property. It said the insurance proposal signed at the attorneys' office had been obtained in error. The bank was unable to produce the proposal form, because it had destroyed it.
The adjudicator recommended that the bank accept liability and reach an agreement with the trust regarding the amount to be paid.
Melville relied on the fact that the bank had, through its attorneys, obtained a proposal for insurance from the trust. This had led the trustees to believe that the bank would insure the property.
Five months after making his recommendation, the bank notified the adjudicator that it would not follow the recommendation and would appeal against it.
The appeal was heard by a retired judge of the Supreme Court of Appeal, who concluded that the adjudicator's recommendation was fair, reasonable and justified.
"I hope that this state of affairs will allay the ungrounded suspicions in some quarters that we were merely doing the bidding of the banks," Melville said in his annual report.
The failure of the appeal means that, to date, banks have followed all the adjudicator's recommendations.
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