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ombudsman news

issue 1

January 2001

case studies - non-disclosure

01/022 motor - non-disclosure - "accidents or losses" - whether policyholder required to disclose unsuccessful claims.
01/023 motor - non-disclosure - mistake - whether insurer entitled to cancel policy.
01/024 motor - non-disclosure - "accident or loss" - named driver - whether policyholder obliged to disclose named driver's loss.
01/025 household contents - non-disclosure - "property stolen, lost or damaged" - whether policyholder liable to disclose attempted break-in.
01/026 motor - renewal - policy replaced - insurer failing to notify policyholder of new policy terms - whether insurer entitled to rely on new terms.

01/022
motor - non-disclosure - "accidents or losses" - whether policyholder required to disclose unsuccessful claims.

The policyholder applied for motor insurance. The proposal form asked: "Have you or anyone who will drive been involved in any motor accidents or made a claim (fault or non-fault including thefts) during the last five years-" His answer was "No."

When the policyholder's car was stolen, the insurer learnt that he had made a theft claim under his previous motor policy within the five year period. The insurer voided the policy from its start date and rejected the policyholder's claim. The policyholder argued that he did not have to disclose his previous theft claim because the insurer concerned had decided not to meet it.

complaint rejected
The policyholder's answer on the proposal form was incorrect. Although the question was confined to claims and did not extend to losses not claimed for, it was clearly worded: it was not limited to successful claims, nor did it ask what the outcome was. The policyholder had pursued his previous claim all the way to a conclusion and ought to have disclosed it. The insurer was fully entitled to treat the policy as void.

01/023
motor - non-disclosure - mistake - whether insurer entitled to cancel policy.

In June 1999 the policyholder applied for motor insurance over the telephone. The insurer's standard practice was to ask about claims made within the previous three years. The policyholder remembered that he had made a claim, but was not sure whether it fell within that time span. He maintained that he mentioned this to the insurer's telesales operator, who told him she would check the position. When the proposal form arrived without any mention of the claim, the policyholder signed it, assuming the insurer's investigation had revealed it was more than three years old. In reality, the insurer had not carried out any investigations, and the claim was not noted on its records.

A few weeks later, the policyholder's car was stolen. On investigating his claim, the insurer discovered he had made a motor theft claim previously, in August 1997. The insurer refused to indemnify the policyholder for his loss, on the ground that he had failed to disclose the earlier claim on the proposal form.

complaint upheld
There was no tape-recording of the policyholder's initial telephone call, so it was difficult to know exactly what was said. At worst, however, it seemed to us that the non-disclosure resulted from a misunderstanding, and - on a balance of probabilities - we were satisfied the policyholder had acted innocently. The insurer would only have charged a small additional premium had it known about the previous claim. In the circumstances, we asked the insurer to meet the present claim in full, with interest.

01/024
motor - non-disclosure - "accident or loss" - named driver - whether policyholder obliged to disclose named driver's loss.

The policyholder applied for motor insurance, answering "no" to the following two questions on the proposal form:

"Has the car been altered/modified from the maker's specification (including the addition of optional fit accessories such as spoilers, skirts, alloy wheels etc.-)"

"Have YOU or ANY PERSON who will drive ... during the past five years been involved in any accident or loss (irrespective of blame and of whether a claim resulted)-"

When the insurer investigated a new claim, it came to light that the car had been fitted with oversized alloy wheels, spoilers, and chrome wheel arches, and that the policyholder's husband, a named driver on the policy, had made two significant claims in the previous five years. The insurer refused to meet the claim and cancelled the policy from its start date.

The policyholder stated that she had bought the car with the all the modifications already fitted, and she assumed they were all part of the car's original specification. She further explained that she did not realise her husband had made one of the two earlier claims, and that his other claim had been rejected because he had only third party cover at the time.

complaint rejected
On the evidence presented, we accepted the policyholder genuinely believed the car was not modified when she bought it. The fact remained, however, that she failed to disclose her husband's previous claims. The question in issue was clear and unambiguous, and asked for details of any "loss" irrespective of whether a claim was made. The policyholder ought, therefore, to have appreciated the need to disclose those previous incidents. By not doing so, she misled the insurer into accepting a risk it would only otherwise have agreed to cover, if at all, in return for a substantially higher premium.

01/025
household contents - non-disclosure - "property stolen, lost or damaged" - whether policyholder liable to disclose attempted break-in.

The policyholder applied for household contents insurance. His local bank manager completed a proposal form on his behalf, which he signed. One of the questions asked was:

"Have you or any member of your household ... had any property or possessions stolen, lost or damaged or had any claims made against you, in the last three years (whether insured or not)-"

The policyholder remembered telling the bank manager of an attempted break-in which occurred some months previously.

The advice he said he was given in reply was that, because the intruders had not gained entry into the house or stolen anything, the incident did not count as a burglary and need not be mentioned on the form.

This previous incident came to light when the insurer appointed loss adjusters to investigate two burglaries. The insurer refused to pay either claim, and voided the policy from its start date. The policyholder was aggrieved, and sought reinstatement of the policy, payment of both claims and compensation for inconvenience suffered. complaint upheld On the question as worded, the policyholder had not supplied an incorrect answer. The question would have had to be phrased differently to elicit disclosure of an attempted burglary which did not result in any quantifiable loss. Even if there had been quantifiable loss, and the policyholder had declared the attempted break-in, it was apparent from the insurer's underwriting guidelines that it would still have been prepared to accept the risk. The insurer agreed to reinstate the policy, deal with both claims, and pay compensation of £250.

finally, as the next case shows, insurers also need to disclose relevant information to policyholders.

01/026
motor - renewal - policy replaced - insurer failing to notify policyholder of new policy terms - whether insurer entitled to rely on new terms.

In October 1999 the Turkish holiday of these policyholders (aged 74 and 76) was disrupted by a severe earthquake. Their tour operator offered to fly them home immediately but they decided to remain. They slept that night on the beach but changed their minds about continuing the holiday when the magnitude of the disaster became clearer. The hotelier was unwilling to allow guests to sleep in the hotel and suggested they slept instead on loungers by the pool. Further earth tremors could not be ruled out, so the tour operator flew the policyholders home at no cost.

The policyholders made a claim for curtailment. This was refused on the ground that the policy did not cover curtailment following an earthquake. The policyholders argued that this was unfair, as Acts of God were not excluded.

complaint upheld
If a particular risk was not covered by the policy in the first place, it was irrelevant whether or not it was excluded. So far as cutting short the holiday was concerned, the policy covered curtailment in the event of the death, injury or illness of the policyholders etc, or if the policyholders had to return home because of burglary, fire, etc affecting their home in the UK. There was no cover for curtailment following a natural disaster in the holiday destination.

However, we were required to make a decision which was fair and reasonable in all the circumstances. In our view, when they took out the travel insurance as part of the holiday package, the policyholders would have envisaged that it would cover them for exactly the type of problem they had encountered. The absence of cover for events giving rise to a real need to curtail the holiday restricted the cover and had not been highlighted in the policy material. According to the insurer's position, the policyholders would only have had a justifiable claim if they had become ill or been injured. It was arguable that this was a significant possibility, given the policyholders' ages and their having to sleep in the open. Taking all these points into consideration, we decided the fair and reasonable solution was for the insurer to meet the claim.

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.