In May 2012, the Irish Insurance Federation’s agreement with the Irish Banking Federation regarding the practice of noting Banks’ interests on policies came to an end. Similarly, the cognate agreement between the Association of British Insurers and the British Bankers’ Association ended shortly after. These developments have thrown a spotlight on the meaning of the term “noting”.
“Noting” a bank’s or other party’s interest in a property on an insurance policy has been a common practice in Ireland for decades. However, the legal protection of noting an interest on an insurance policy has always been somewhat “illusionary”. “Noting” a person’s interest does not make that person a party to the insurance contract nor does it confer on that party any right to rely on, or enforce any of the insured’s rights under the policy. In addition, noting does not by itself:
- Protect the interested party if the acts/omissions of the borrower enable the insurer to avoid the policy or repudiate a claim
- Protect the interested party from facing subrogation proceedings brought by the insurer
- Give the interested party priority over other creditors if a borrower becomes insolvent
This position was recently confirmed in a UK case in which it was held that the noting of an interest means no more than recording its existence. The only practical significance of noting a party’s interest, is to place the insurer on notice that the beneficial owner of the proceeds of any claim made by the insured, may be someone other than the insured.
It is now a matter for each individual insurer and bank to agree what in fact “noting” on that particular insurer’s policy will mean. In the current climate where banks are likely to seek higher levels of protection of their interests, it remains to be seen if losing the collective practice of noting a third party’s interest on policy documents is any great loss at all.