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ombudsman news

issue 18

July 2002

our assessment team and insurance complaints

The March and May 2002 issues of ombudsman news outlined how the caseworkers in our assessment teams explore ways to resolve as many complaints as possible at the earliest stages - through informal, agreed settlements. This can greatly reduce the number of complaints that require the often lengthy and time-consuming investigation that leads to a formal decision. Generally speaking - the more quickly we can resolve a dispute - the happier both sides are.

Of course, there will always be some cases that can only be resolved fairly after a full investigation and a formal decision. But around 35 percent of the insurance complaints we handle are now settled by members of the assessment team taking a careful look at the facts and bringing the two parties together by mediation or conciliation.

Sometimes all that is needed is for us to reassure a consumer that, for example, their allowing the insurer to inspect their damaged property is a necessary step towards dealing with their claim. Or we may be able to help the insurer take a fresh look at a case and reach a decision. The two parties may then go on to resolve these cases without any further involvement from us.

In other cases, we will set out our view of the merits of the complaint. We try to do this over the telephone wherever possible. This is usually the most helpful way of explaining matters and it allows us to respond, there and then, to any questions raised. Consumers are often pleased just to be able to talk the situation through with a neutral party.

We rely a great deal on the cooperation of firms. It is important that they are prompt in sending us the paperwork we ask for, and that we can contact them easily by telephone to talk through aspects of the case. It is also essential that, once a firm has agreed with us that it will make an offer, it makes a note of this agreement and does not subsequently attempt to withdraw or amend the offer.

case studies

The following cases illustrate some of the wide range of complaints that caseworkers in the assessment team have resolved in recent months.

18/06
travel - cancellation - cancellation as a "direct consequence of compulsory quarantine or subpoena" - whether claim by policyholder held on remand valid.

Mr H took out a single trip travel policy for his holiday to Benidorm. However, he was unable to take the holiday. Three days before he was due to travel he was arrested and kept in custody for seven days.

The insurer rejected his cancellation claim. It said that the policy covered cancellation only in certain specified circumstances and this was not one of them. Mr H argued that his claim was valid because cancellation as a "direct consequence of compulsory quarantine ... [or] subpoena" was covered.

complaint rejected
We did not agree that Mr H was in "compulsory quarantine" while he was held on remand. His detention may have been similar to being subpoenaed to appear in court but it was not the same. The reason he was unable to travel was because he was in prison, not because he was required to appear in court. In the circumstances, the insurer was justified in rejecting Mr H's claim.

18/07
payment protection - insured increasing loan but not insurance - how insurer should calculate benefits.

Mrs E arranged a mortgage in 1995 and took out payment protection insurance through the lender to cover her repayments. On three occasions during the next six years, she arranged remortgages of her property with the same lender.

In 2001, Mrs E was made redundant and submitted a claim under the policy. The insurer accepted her claim, but it calculated the benefit that was payable to her each month on the basis of her monthly mortgage payment in 1995. This was insufficient to cover the increased repayments that resulted from the later remortgages.

Mrs E argued that the benefit payable under the policy should have increased each time she remortgaged her property, to protect the revised monthly payments. The insurer said it had been her responsibility to ensure the policy cover was adequate.

complaint upheld
In our view, each time the remortgage was arranged, the insurer should have suggested to Mrs E that she should increase her policy cover. It should also have drawn her attention to the inadequacy of the benefit payable under the policy unless she did so. This would have been good insurance practice, since insurers and intermediaries arranging insurance policies have a duty to ensure that the policy is suitable for the policyholder's needs and resources.

The insurer agreed to recalculate Mrs E's benefits as if she had increased the cover each time she remortgaged her property. It backdated this additional payment to the start of her claim, deducting the amount she would have paid in premiums for the increased cover.

18/08
household buildings - storm - proof of storm.

Mr M, whose house is on top of a mountain in South Wales, submitted a claim for storm damage to the rear windows. He said that in July 2001, storm force winds had caused serious damage to all the windows at the rear of his house. However, he did not submit the claim until October 2001 and by then he had replaced all the windows and doors.

The loss adjuster appointed by the insurer to inspect the damage had found nothing left to inspect - the glazier had disposed of the old windows and doors. The insurer rejected the claim on the basis that there was no evidence of storm damage. Mr M sent the insurer a letter from the glazier stating that the windows were replaced because they were in a "very weatherbeaten state, particularly those at the rear".

complaint rejected
We spoke to the glazier, who indicated that the windows had not been damaged during a single incident of stormy weather, but were in a state of general decay resulting from the normal weather conditions in that area.

Weather reports recorded strong winds during July 2001, but there was insufficient evidence to indicate these had been "storm force". We concluded that the windows had not been damaged by storm force winds and we rejected the complaint.

18/09
travel - non-disclosure - exclusion for pre-existing medical conditions - whether insured required to disclose treatment for related conditions.

Mr N took out insurance to cover his holiday in Canada in May 2001. The policy included a declaration that he "had not suffered from or received treatment for ... a heart-related condition, hypertension, or a stroke ... [or] received in-patient treatment, has been prescribed medication or has had a change of medication during the last 12 months ...".

Mr N told the agent that he had "dormant" angina and disclosed his age. As a result, the insurance premium was doubled. He did not mention any other conditions. While on holiday he suffered a stroke and incurred substantial medical costs. The insurer would not reimburse Mr N's medical expenses. It said this was because of his failure to disclose that, in 2000, he had suffered from mild hypertension and had been referred to a consultant for "intermittent claudication" (leg cramps).

Mr N disputed this decision. He submitted evidence from his doctor that the episode of hypertension had "resolved spontaneously". Although Mr N had received antihypertensive treatment, this was for ankle oedema (related to the claudication) and not for hypertension.

complaint upheld
We concluded that the evidence did not support the insurer's decision that Mr N had failed to disclose a medical condition he was required to make known. The medical evidence confirmed that the antihypertensive treatment Mr N received was not for hypertension.

His condition of claudication/ankle oedema was not directly related to the disability that led to his claim - the stroke - so the insurer was not entitled to reject the claim. Mr N had not failed to disclose hypertension; he had not received treatment for that condition within the excluded period.

The insurer agreed to meet the claim and to add interest.

18/10
extended warranty - proof - policyholder claiming for second of two identical losses - evidence required to prove loss valid.

Mr D had two fridge-freezers. When one of them broke down and had to be replaced, he took out extended warranty insurance to cover both the new fridge-freezer and the one he already had. Unfortunately, just three weeks later, the old fridge-freezer broke down and that too had to be replaced. Mr D submitted a claim for a replacement and for compensation for the food that had been spoilt. He also claimed for the cost of other food that he had intended to store in the fridge-freezer which broke down, and that he had since had to throw away because it would not fit in the remaining freezer.

The insurer rejected Mr D's claim on the ground that it related to the earlier incident, that took place before the start date of the insurance. Mr D refuted this and insisted that the second breakdown was covered.

complaint upheld in part
Mr D produced evidence showing that when the first fridge-freezer had broken down, it had been removed and replaced. This proved that he had owned two identical models.

The insurer agreed to deal with the claim and also to pay £130 for the spoilt frozen food. However, it refused to reimburse the cost of the food that Mr D had intended to store in the freezer. We agreed that there was no cover under the insurance for this part of his loss.

18/11
household buildings - non-disclosure - cancellation - whether insurer entitled to refuse to meet cost of work completed before policy cancelled.

Mr J applied for household insurance in January 2001. When asked about his insurance history, he disclosed three previous claims, for which he had been paid a total of £2,800. The insurer sent him a statement of facts for checking, together with a direct debit mandate for the payment of premium instalments. One of the statements confirmed that no insurer had ever refused to cover Mr J.

In June 2001, Mr J's pigeon loft caught fire and was damaged beyond repair. He submitted a claim form and two estimates for replacement of the loft. The insurer accepted his claim and told him to proceed. However, it then made enquiries. It found that Mr J had failed to disclose that two insurance companies had refused to insure him. It also discovered that he had not disclosed all his previous claims, for which he had received a total of £24,000.

The insurer refused to pay for the new pigeon loft. It cancelled the insurance and refunded the premiums Mr J had paid. Mr J asserted that he had never received the statement of facts, although he had signed and returned the direct debit mandate. He denied giving incorrect information to the insurer. He claimed he had read out over the phone to the insurer a letter from his previous insurer, saying it would no longer continue to insure him.

complaint upheld in part
Non-disclosure is a serious allegation. The information that a proposer (someone applying for insurance) provides to an insurer is the basis of the contract and only the proposer can answer the insurer's questions. If Mr J had given false information to the insurer, it would have been fully justified in cancelling the policy.

But we were not satisfied that Mr J had provided incorrect information. He had not been asked to give written answers to the insurer's questions, or even to sign the form on which the insurer had recorded the information he had provided. It was possible that he had not received the statement of facts or that he had failed to check it carefully. The statement of facts was the only record of his telephone conversation with the insurer.

We accepted that the insurer would have refused to issue this policy if it had been aware of Mr J's claims experience. The contract had therefore been agreed on the basis of a fundamental mistake, so the insurer was entitled to cancel it. However, we thought it would be unfair to allow the cancellation to prejudice Mr J. He had started work on the replacement loft on the clear understanding that the insurer had accepted his claim. The insurer agreed to meet the cost of all the work that had been carried out up until the time it notified Mr J that it was cancelling the insurance.

18/12
motor - accessories - valuation - whether policyholder entitled to cost of new replacement.

Mr F was involved in an accident with a third party. Both cars were insured with the same company. The third party was 100% liable for the damage to Mr F's car and the insurer settled Mr F's claim on a "total loss" basis. Mr F also received further payments from the insurance company on behalf of the third party.

The insurer agreed to Mr F's request to retain the car's CD player and roof bars. Mr F thought he might also want to keep the tow bar, although he did not mention this. However, when he got his replacement car, he found that it was a different model and that the old CD player and roof bars did not fit. So he told the insurer he was claiming the cost of a new CD player, roof bars and tow bar.

The insurer said there was no cover for these losses, but it agreed to increase its settlement to reflect their market value, since he could not use them in his new car. It paid Mr F a further £140 for the CD player and £50 for the tow bar. It made no payment for the roof bars, but offered to assess their value if Mr F sent them in.

complaint rejected
We did not agree that Mr F was entitled to the cost of a new CD player, roof bars and tow bar. His insurer's liability was limited to the market value of the car's accessories, adjusted for "wear, tear and loss of value" due to their age. The insurer had calculated its offer fairly and we did not consider there were any grounds for increasing it.

Walter Merricks, chief ombudsman

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.