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ombudsman news

issue 18

July 2002

misleading descriptions

We see a small number of disputes where we feel the policyholder has been seriously disadvantaged by a misleading description of an insurance policy. Customers who see something purporting to be "personal accident insurance" expect it to provide a reasonably wide-ranging cover for a variety of accidents that might occur. In a few cases, however, although the policy heading or the associated leaflet appear to promise the same wide-ranging cover as other policies with a similar title, the reality falls far short of this.

We take the view that, when judging what the policy provides, a customer is entitled to rely - at least to some extent - on the policy headlines. Where a policy description is not borne out by the small print, we will consider whether the customer could have had any reasonable expectations of cover on the wider basis. We look at what a reasonable person would have concluded about the nature of the cover from the information available to them. Would they readily have understood the restricted nature of the policy on offer or would they have gained the clear impression that wider cover would be provided-

Where appropriate, we will conclude that the firm has not adequately explained the main features of the policy, in the way it is required to do under the General Insurance Standards Council code, and that it may not have done enough to ensure the product is suitable for the policyholder's needs.

The remedy in such cases will not be a simple matter of returning the customer's premiums. Where better alternative cover is readily available, we are likely to conclude that the firm should handle the claim as if its unusual and/or misleading restrictions on cover did not apply.

case studies - misleading descriptions

18/13
extended warranty - upholstery - meaning of "upholstery".

When Mr V bought a sofa in 1997, he took out extended warranty insurance to protect it. The policy was headed - "A Five Year Policy for Upholstery (excluding leather)". The following year, he found that a section of the upholstery was coming loose and separating, so he claimed the cost of repairs. The insurer told him that the cover was limited to "structural defects" and did not provide indemnity for problems with the upholstery.

complaint upheld
There was a clear conflict between the actual terms of the policy and the description of the policy cover on its front page. Mr V said that the name of the policy was misleading and that he would not have bought the policy if he had understood how restricted the cover was.

We did not accept the insurer's argument that the policy only covered "structural defects" with "upholstery". The policy did not define "upholstery", and its ordinary meaning is the fabric that covers furniture. If the insurer intended the word to be defined in a more restricted way, it should have made this clear.

Since the insurer was unable to show that the limited nature of the policy cover had been made clear to Mr V, we concluded it was not justified in rejecting his claim. We also awarded Mr V £100 compensation for the insurer's poor claims handling.

18/14
travel - driving - breakdown and recovery insurance - whether providing comprehensive motor cover.

Mr I took out holiday motoring insurance specifically to cover his European motoring holiday. He had an accident while on the holiday, which resulted in his car being written-off. His travel insurer refused to meet his claim, on the ground that the policy only covered "breakdown and recovery" of his car. It told him he should claim under his UK motor insurance.

Mr I was dissatisfied with this response. He argued that he had been led to believe that the travel insurance provided him with the same level of cover - abroad - that he held in the UK (fully comprehensive motor insurance). If he had been correctly informed about the policy, he would not have purchased it, particularly since his motor insurer would have provided fully comprehensive cover in Europe if he had paid an additional premium.

complaint upheld
We were not satisfied that the insurer had used its "best endeavours" to ensure the policy was suitable for Mr I's needs, as it was required to do under the terms of the Association of British Insurers' Code for the Selling of General Insurance. The insurer accepted our recommendation that it should deal with the claim as if the policy covered the full loss, and that it should refund the storage charges Mr I had paid, together with interest.

18/15
household contents - limit of cover - brochure promising wider cover than policy terms - whether insurer entitled to rely on policy exclusion.

Mrs K took out the household insurance recommended by her lender and chose the top of the range offered - "Supercover Special". The brochure described it as "unlimited contents cover - accidental damage and personal possession cover outside the home" and "one of the most complete covers available". It confirmed that personal possessions, including sports equipment and children's bikes, were covered up to £1,500 for any one article.

The explanatory leaflet stated that the policy did not cover "motor vehicles, caravans, trailers, aircraft, watercraft or spare parts and accessories". However, it warned - "This leaflet is just a guide and does not summarise all aspects of the cover; only the policy document does this."

When Mrs K made a claim for the theft of her son's baby-quad bike, the insurer rejected it, citing the policy exclusion for "mechanically propelled vehicles". It said the quad bike should have been covered by motor insurance. Mrs K objected, arguing that she had never received a copy of the policy document and that the leaflet suggested that the bike was covered. She also pointed out that her son was only seven years old and could not have used the bike on the road or taken out motor insurance.

complaint upheld
Whether a baby-quad bike was a "motor vehicle" or a "mechanically propelled vehicle" was debatable. However, we did not need to decide that point. There was a clear contradiction between the policy exclusion and the wording of the leaflet. Not only did it expressly include "children's bikes", but it stated there was "unlimited" contents cover. It did not seem reasonable to assume Mrs K should have known that the insurer did not consider her son's bike to be part of the "contents" of her house.

The insurer had not worded its policy leaflet in a clear and unambiguous way, so Mrs K was entitled to the benefit of the wording that was most favourable to her. We required the firm to meet her claim.

18/16
household contents - renewal - notification of new restriction on benefits - whether leaflet documenting change constituted sufficient notification.

Mrs H had household insurance for some years. In March 2001, her car was broken into while she was visiting a hospital and possessions were stolen from the locked car boot. She submitted a claim for £2,385 and provided receipts.

The insurer accepted her claim, subject to the policy limit of £1,000, and it deducted the policy excess of £50 from its settlement. Mrs H complained, saying her policy did not refer to such a limit. The insurer said it had imposed the limit when the policy was renewed in 1999.

The changed terms introduced at that time meant that the insurer would not meet claims for - "Theft from unattended road vehicles other than from a locked, concealed luggage boot ... following a forced and violent entry to a securely locked vehicle. The most the insurer will pay for any one event is £1,000."

Mrs H denied receiving any information about the change of terms. Although she had moved house in 1999, she had kept all the documents that the insurer had sent her. The insurer produced computer records to prove it had sent Mrs H notification of the change.

complaint upheld
We could not determine whether Mrs H had received the insurer's notification. However, even if she had, we did not consider the notification was sufficient to draw her attention to such an important change in the policy cover. Any significant restriction in benefits needs to be highlighted but the leaflet did not do this adequately. So it was not reasonable for the insurer to rely on the restriction when it calculated its settlement of her claim.

In addition, we considered the wording of the exclusion ambiguous. It could be argued that the phrase "any one event" did not refer to thefts from a locked, concealed luggage boot. However, in view of our first conclusion, we did not need to make a decision on this point.

Finally, the insurer had not calculated its settlement correctly. It should have deducted the excess before it applied the policy limit. We were surprised that the insurer had not noticed this error when it reviewed the complaint. We required the insurer to waive Mrs H's excess - as compensation - and to pay the balance of the amount she had claimed, together with interest.

18/17
household contents - renewal - change of policy terms - need to highlight change.

Miss L's golf clubs were too big to fit in the boot of her car so she folded down one of the back seats and placed the clubs there. When she returned from an afternoon's play, she forgot to bring the clubs indoors. By the next morning, they had been stolen. The insurer rejected her claim. It said that her household contents insurance only covered thefts "from a locked, concealed luggage boot" of an unattended car.

complaint upheld
We agreed with the insurer that Miss L's loss was caught by the wording of the exclusion. As at least parts of the golf clubs were visible, they had not been taken from a "concealed" luggage boot.

However, we were concerned that the policy terms did not contain this exclusion. The insurer explained that it was added to the policy with effect from the date of renewal in August 1999 and it said it had sent Miss L documents explaining this at the time. Miss L said she had not received any such documents.

The insurer claimed to have sent Miss L:

  • a standard letter referring to the renewal;
  • a page setting out the premium and direct debit details;
  • a schedule providing a general breakdown of the cover;
  • an advertisement for travel insurance; and
  • the policy update entitled "important changes to your home protection policy".

We did not consider that this set of papers - noting the restriction on cover in the middle of the "update" - was adequate to draw Miss L's attention to the change. There was no warning that part of the existing cover had been withdrawn and we decided that this fact had not been sufficiently highlighted or properly explained. It is important that adverse changes are prominently announced. We required the insurer to meet Miss L's claim in full and to add interest.

18/18
household buildings - flood - rising water table - cesspit - whether "damage" caused to cesspit by "flood".

Mr G's house was 150 years old and served by a cesspit, not connected to mains sewerage. Following unusually heavy rainfall between September 2000 and February 2001, the cesspit was becoming full of water within hours of being emptied. Mr G's sanitary and washing facilities became unusable. He submitted a claim under his household buildings insurance for the cost of remedial work, claiming the cesspit had been damaged by "escape of water" or "flood".

Mr G's insurer rejected his claim, explaining that damage due to escape of water was only covered if water had escaped from a fixed water system. In Mr G's case, the reverse was true, since water appeared to be entering the cesspit from the outflow pipes. And the insurer said that "flood" only occurred if there was a "rapid accumulation or sudden release of water from an external source".

complaint upheld
According to a recent decision by the Court of Appeal, the word "flood" should be construed in its ordinary and natural sense and can include prolonged and steady rain or a steady, slow build-up of water.

In this case, the cesspit had been affected by rising ground water. It was not an "escape of water" but could be described as a "flood". The water had not caused physical damage to the cesspit but it had prevented Mr G from using it as usual. This was a "loss" and it was therefore covered by the insurance.

We put it to the insurer that Mr G's claim was valid and that he was also entitled to compensation for the insurer's delay in accepting liability. This had meant that Mr G and his family were left without proper sanitary facilities for some months. The insurer accepted our conclusions and agreed to meet the claim and to pay £1,000 compensation for distress and inconvenience.

18/19
household - storm - proof of storm - proof that damage caused by storm.

Mr S noticed damage to his roof tiles and internal decorations. He had the damage repaired and submitted a claim to the insurer. The insurer rejected the claim after the repairer it sent to look at the damage noted that there were visible signs of wear and tear on the roof.

Mr S submitted a report from his builder, denying any wear and tear and saying the damage was due to a storm. The insurer obtained weather reports that showed there were no storm conditions at the time Mr S noticed the damage. Mr S then conceded that he did not use the damaged bedroom often, so he was unsure when the storm had occurred.

complaint rejected
It was up to the claimant to show that the damage was due to a particular storm and not merely to poor weather over a period of time, or to general wear and tear. We did not require the insurer to meet the claim. There was no evidence that the damage to the roof had been caused by a storm, or even that there had been a storm around the time of the claim.

18/20
personal accident - motor accidents - policyholder assaulted when getting into car - whether assault covered under policy.

Mr Y submitted a claim under his "4-Way Accident Cash Plan", when he was assaulted outside a food and wine shop by the shop owner, and injured his knee.

The insurer rejected his claim on the ground that the policy only covered him if he sustained an accident when he was getting into or out of a private car or public conveyance, or if a vehicle struck him when he was walking on a public road. Mr Y argued that his claim was valid because he had been assaulted while he was getting into his car, after leaving the shop.

The insurer refused to make any payment. It referred to Mr Y's initial statement about the injury, which had not mentioned his car at all.

complaint rejected
Mr Y was unable to produce any evidence to support his amended description of the incident. Given that he had not originally mentioned the car, we were not convinced that the incident occurred as he claimed. Even if we had been convinced about this, the claim still did not meet the strict criteria of the policy, which limited benefits to injuries sustained as a result of a motor accident.

18/21
motor - non-disclosure - clear questions - modifications - whether tinted windows a "modification".

When Miss M took out motor insurance, she was asked to disclose any modifications that had been made to her car, such as changes "to engine, body, wheel, suspension". She informed the insurer that the car had a body kit but she did not mention any other modifications.

Some time later, after she put in a claim for theft damage to the car, the engineer appointed by the insurer to inspect the car noted that it had tinted windows. The insurer rejected her claim and immediately cancelled her insurance from the start date. It said she should have mentioned the tinted windows, since they constituted a "modification" and it would not have issued the policy on any terms if it had known about them. Miss M then had to act quickly to obtain insurance with another firm, and she had to pay a much higher amount for it.

complaint upheld
It was debatable whether the windows were part of the car's "body" and whether tinted windows were a modification that Miss M was required to disclose. We were satisfied that she had genuinely not realised that she needed to tell the insurer about the windows. We thought the insurer should at least have asked her to explain why she failed to mention the windows, instead of just cancelling her insurance without warning.

We decided that the firm had not been justified in cancelling the insurance. Miss M had by this time taken out an alternative policy with a different firm. So we suggested that the earlier policy should be treated as having been cancelled by her rather than by the insurer. She should give back to the insurer part of the premiums it had refunded, from the policy start date until the new insurance began. In any event, we decided that the insurer had to reimburse Miss M for the cost of repairing the car, plus interest. We also decided that the insurer should pay her £300 compensation for the distress and inconvenience it had caused.

18/22
mechanical breakdown warranty - exclusion for external oil leaks - meaning of "external".

The camshaft oil seals on Mr R's car broke down and oil leaked on to the cam belt, which was contained in housing at the end of the engine, the housing being sealed with a gasket. Mr R arranged for the necessary repairs - steam-cleaning of components and replacement of the cam cover gasket and the oil seals. He then claimed back the cost of the repairs from his insurer.

The insurer rejected the claim on the ground that the policy excluded "external oil leaks". It explained that it would cover internal oil leaks, such as a leak into the cylinders from a blown head gasket. However, it would not pay for any leak outside the main engine block, sump and cylinder head. Mr R argued that the wording of the exclusion was ambiguous.

complaint upheld
We concluded that the insurer had interpreted the exclusion too restrictively. We did not think it was reasonable to expect policyholders to appreciate the narrow distinction it was making between different types of oil leaks. And we did not agree that an oil leak into a housing, due to the failure of the oil seals, would generally be regarded as "external". We therefore required the insurer to meet the claim in full, plus interest.

18/23
medical expenses - transfer from "a similar existing plan" - whether previous insurance arrangements were "a similar existing plan".

Mr T was a member of his employer's private medical expenses insurance scheme until 1 September 1993, when he transferred into a personal scheme with the same insurer. Then in September 1999, he cancelled that policy and took out a similar policy with a different firm, whose explanatory literature promised that "cover may be transferred from a similar existing plan and future claims made for acute conditions originating at the time you were participating in a previous plan will be honoured. No health questions will be asked or medical examinations required."

In July 2000, Mr T saw a consultant about recurrent groin pain and underwent investigations and a colonoscopy. However, after making enquiries, the insurance company rejected his claim to have his costs reimbursed. It said Mr T had not been entitled to an automatic transfer because his previous insurer had not asked him any questions about his health before it issued him with cover. It also concluded that his illness had "originated" before he had taken out the personal insurance cover in 1993, because he had received the same treatment in 1987. It did not accept that Mr T's corporate membership was relevant.

Mr T argued that his 1987 claim had been met by the insurance company that covered him at that time and also that his current claim was for a different illness, even though the treatment was the same. He pointed out that the current insurer had not told him that his cover could only be "transferred" if his previous insurer had asked questions about his health before offering him insurance. In response, the insurer said that Mr T should have understood the terms on which it would allow cover to be transferred.

complaint upheld
The condition on which the insurer relied in rejecting Mr T's claim stipulated that cover could only be transferred "from a similar existing plan". It did not define this term or make it clear that the previous scheme would not qualify unless it had been underwritten on the basis of questions about the policyholder's health.

We concluded that it would have been difficult for anyone to understand the insurer's requirements. Moreover, the explanatory literature only emphasised the ease of transfer, not the insurer's restrictions.

We considered that the insurer should have asked Mr T specific questions on any matters it regarded as vital, before agreeing to provide cover. We decided that all Mr T's previous insurances - both the corporate and the personal schemes - should be treated as "a similar existing plan".

We also concluded that the 1987 illness was too remote to be considered as "an illness that ... originated before the enrolment". The insurer was not entitled to reject Mr T's claim on either of the grounds it cited. We required it to reimburse Mr T in full and to add interest to its payment.

18/24
payment protection - unemployment - unemployment defined as redundancy - whether policy restriction made clear to borrower before sale of policy.

Mr B took out insurance to protect his loan repayments. His lender arranged a "Life, Disability and Unemployment" policy. When Mr B became unemployed, he made a claim. The insurer refused to meet his loan repayments, stating that the policy only provided benefits if he became redundant. The policy defined "unemployed" as "being without work due directly to your redundancy or business failure". It also relied on the policy definition of "redundancy": "employment being terminated due solely to your employer ceasing or reducing the activities for which you were engaged".

Mr B argued that he was redundant because he had received a redundancy payment, but the insurer did not agree. It pointed to evidence from Mr B's former employer, showing that he had been dismissed because he was incapable of performing his duties satisfactorily.

complaint upheld
The policy title referred to "unemployment" cover, but the policy did not include this benefit and restricted cover to redundancy situations. This restriction was only apparent after a close reading of the policy, including the definitions section. However, the insurer had named and marketed the insurance as if it covered all unemployment. It did not do this, so the insurer had to ensure that the lender selling the policy made the actual scope of the cover clear to potential purchasers before they committed themselves.

There was no evidence that the lender selling this policy had drawn Mr B's attention to the limitations of cover and we accepted on balance that the policy had been mis-sold. We did not consider that it would be fair merely to give Mr B a premium refund - if he had known the policy did not cover all unemployment, he could have bought wider cover from another insurance company. He had been prejudiced by the lender's failure to explain the terms of this insurance.

We were satisfied that Mr B had become unemployed through no fault of his own. So we required the insurer to meet his claim and to pay any interest or arrears charges he had incurred.

18/25
personal accident - mis-sale - road and travel plan - bicyclist - whether policy misrepresented to policyholder.

Mr M and his partner took out a "Road and Travel Plan" in 1996. The policy benefits were set out in a table. Shortly before taking out this plan, Mr M's partner had been involved in a road traffic accident and had been distressed to find that the insurance she had at the time did not provide any cover for her injuries.

In 2001, Mr M was injured while riding his bicycle. No other vehicle was involved in the accident. He submitted a claim, but the insurer refused to make any payment. It told him the policy only covered accidents involving motor vehicles or public transport. Mr M said this restriction had not been explained to him and he asked for a full refund of his premiums.

complaint rejected
The policy's title indicated that it was concerned with road accidents involving motor vehicles. In fact, it only provided cover for policyholders injured in accidents if they were in a vehicle or if they were a pedestrian, pedal cyclist or passenger on public transport and had an accident with a vehicle.

We were unable to accept Mr M's allegation that he was led to believe that the policy covered any personal accident. Nor did we agree that the policy was unsuitable for his needs and was mis-sold to him. He was not entitled to a full premium refund.

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.