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ombudsman news

issue 80

October/November 2009

insurance disputes involving claims for unemployment or sickness benefit

A number of different insurance products offer benefits in the event of an accident, sickness or unemployment - and we see a significant number of complaints involving claims made under policies of this type. Sometimes, the consumer is unhappy because of delays in processing and paying a claim. But more often, in the cases brought to us, the insurer has turned down a claim for reasons that the consumer thinks unfair or unreasonable.

Consumers who have claimed under policies of this type will generally be experiencing difficult circumstances, so a considerable amount of sensitivity is called for when dealing with these issues.

The following case studies illustrate our approach in some of the complaints we have dealt with recently. As always, the outcome will depend on the specific details of each individual case.

80/01
insurer rejects claim for unemployment benefit when policyholder loses her job through redundancy

When Miss J, who worked for a large high street retailer, obtained a credit card she also took out payment protection insurance (PPI). This covered her monthly repayments, should she become unemployed because of sickness, disability or redundancy.

Around the time she applied for the credit card and insurance, there was some comment in the media about her employer facing a difficult period. The retailer had recently published very disappointing financial results and there was much speculation among her colleagues about its future prospects. Miss J had therefore thought the redundancy cover offered by the policy might prove useful. However, at that stage she had no particular reason to think she would lose her job.

A few weeks after she had obtained her credit card and policy, Miss J's employer announced that it would be consulting staff about possible job losses throughout the company. Three months later, Miss J was told that her own job was one of those at risk of redundancy. And ten weeks after that, Miss J was selected for redundancy and left the company.

Shortly afterwards, Miss J submitted a claim under her payment protection policy for unemployment benefit. This was turned down, on the grounds that the policy terms excluded unemployment claims if the policyholder became "aware of any increase in the risk of unemployment" within 90 days of the policy's start date.

After complaining unsuccessfully to the insurer about what she thought was "a very unfair decision", Miss J referred her complaint to us.

complaint upheld
We accepted that the insurer needed to limit the scope of its policy, as a safeguard against people applying for cover at a stage when they already knew they were very likely to lose their jobs. However, we took the view in this case that the exclusion was so broad that it was unfair.

On a strict reading of the exclusion, if, for example, there was any deterioration in the UK's economic environment during the first three months of the policy, then this might result in policyholders losing all unemployment cover under the policy.

If the insurer wished to exclude cover because a policyholder's knowledge or circumstances changed within the first three months of a policy, then it needed to word its exclusion very clearly - setting out what change or changes had to take place for the exclusion to apply. This had not happened in this case. The insurer also needed to ensure that consumers were made aware of the exclusion, at the time they bought the policy. Again, this had not happened here.

We considered that Miss J had acted honestly and in good faith. At the time she took out the policy, she had no particular reason to believe she was at risk of redundancy. So we said it was neither fair nor reasonable for the insurer to reject the claim.

80/02
insurer stops payment of sickness benefit on grounds that policyholder is well enough to return to work

Mr C, who was in his early 40s, worked full-time as a messenger at a large transport company. After being diagnosed with anxiety and stress-related conditions, he put in a claim for sickness benefit under his income protection policy. The insurer accepted his claim and - as his condition did not improve sufficiently for him to return to work - it continued paying him benefit over the next four years.

In line with the policy terms, at the end of that period the insurer carried out a detailed review of Mr C's situation. The assessment that his consultant provided, as part of this review, suggested there was some doubt about whether Mr C was "truly fit to return to work". However, this opinion did not appear to be based on any clear medical grounds. The insurer therefore asked Mr C to undergo an independent medical examination.

The specialist who conducted this examination concluded that Mr C was fit enough to return to work - and that returning to work would be beneficial for him. So the insurer told Mr C there was "insufficient medical evidence" to support his "continued inability to work as a result of a medical condition".

Mr C complained that it was "unfair and unreasonable" to stop his benefits. He said that as well as suffering from "ongoing mental illness", he now had "a number of physical disorders" that prevented him from working. Mr C was unable to provide any evidence of these "disorders", so the insurer said it was unable to reconsider the matter. Mr C then brought his complaint to us.

complaint not upheld
The issue for us to determine was whether the insurer had adequately established that Mr C's condition no longer fell within the policy's definition of "incapacity for employment".

We found that the medical evidence tended to support the insurer's stance. Mr C's symptoms were not consistent with a disabling mental illness. And we noted that the independent consultant had said Mr C would benefit from returning to work.

We considered what Mr C had said about his "physical disorders", but we found that the medical evidence did not suggest he had any physical symptoms that would result in his meeting the policy definition of "incapacity for employment".

We concluded that the insurer had been entitled to terminate the claim, so we did not uphold the complaint.

80/03
insurer refuses to pay sickness benefits on grounds that policyholder's illness was a "pre-existing condition"

Mr G, who was in his early 50s, was diagnosed with a serious respiratory condition. As this prevented him from working, he made a claim for sickness benefit under his payment protection insurance policy (PPI).

The insurer turned down the claim. It told Mr G he was not eligible for benefit as he had been diagnosed with respiratory problems before the policy's start date. It said he therefore "would have been aware, or should reasonably have been aware", that he already had this condition when he took out the policy.

The insurer said Mr G's medical records showed that, before the policy's start date, his GP had referred him to a consultant because of a problem that would have caused the shortness of breath. This problem was known to be linked to his now more serious condition. The insurer added that the medical records showed that Mr G might already have acquired the more serious respiratory condition before he took out the policy.

Mr G disputed the insurer's conclusion. He said his GP had confirmed there were references in his medical records to the more serious condition - and these dated from before Mr G applied for the policy. However, the GP had not told him that he had - or might have - the more serious condition. The GP had simply noted, for his own reference, some possible causes for the problems Mr G was experiencing. Mr G had only known he had the more serious condition when the actual diagnosis was made - after the policy had started.

When the insurer said it was unable to reconsider the matter, Mr G complained to us.

complaint upheld
After examining the evidence in this case, we were satisfied that - at the time he took out the policy - Mr G had not known he was suffering from a serious respiratory condition. We were also satisfied that he had not known that the seemingly minor symptoms he was experiencing suggested he had an illness of this nature. No definite diagnosis had been made before the policy was taken out.

And the notes made by the GP - which included speculation about several possible causes for Mr G's symptoms - had not been shown to Mr G or discussed with him.

We told the insurer that it was not appropriate in this case for it to cite the exclusion relating to "pre-existing medical conditions" in order to reject the claim. We said it should pay the claim, in accordance with the terms of the policy.

80/04
insurer turns down claim because consultant's description of policyholder's illness does not fall within the policy definition for that particular condition

After his GP referred him to a consultant neurologist, Mr B was diagnosed with multiple sclerosis. He put in a claim under his critical illness policy, which was designed to pay out a lump sum if he was diagnosed with one of the serious illnesses listed in the policy - and met the qualifying circumstances.

The insurer told Mr B that his condition did not fall within the definition of "multiple sclerosis", as set out in the policy, as no definite diagnosis had yet been made. In a letter sent to Mr B's GP, the consultant had referred only to "probable" multiple sclerosis.

A few months later the consultant saw Mr B again and gave him a definite diagnosis. The insurer had said it would review the claim if this happened, and on the basis of the medical evidence it received at this stage, it agreed to meet the claim.

The insurer said it would pay the claim from the date of the definite diagnosis. Mr B said payment should be back-dated to when he first saw the consultant. He said that if the insurer had investigated his original claim more thoroughly - and had contacted the consultant direct - then the diagnosis would have been confirmed at that point.

Unable to reach agreement with the insurer, Mr B referred his complaint to us.

complaint not upheld
Generally speaking, the descriptions and definitions of the illnesses covered in policies of this type have been standardised across the insurance industry. We did not, therefore, need to look into this aspect of the case. The issue for us to determine was whether the insurer had acted reasonably in turning down Mr B's initial claim.

At the time he made his first claim for multiple sclerosis, there was a widely-accepted diagnostic approach within the medical profession for establishing if a patient had this condition.

The diagnostic test the consultant carried out, in accordance with this approach, showed that Mr B's multiple sclerosis was only "probable" at that stage. It was not until some time later that the diagnostic test confirmed the disease as "definite".

We did not uphold Mr B's complaint and we explained to him why, in the circumstances, we did not think the insurer had acted unfairly in refusing to meet his initial claim.

In situations involving illnesses where such a widely-accepted diagnostic approach does not exist, we would expect insurers to use the best available medical evidence in order to establish whether a condition meets the criteria set out in the policy.

80/05
insurer refuses to pay benefits to policyholder who becomes too ill to work

Miss M, who worked full-time in a garden centre, took out a payment protection policy (PPI) when she got a loan from her bank. The policy was designed to ensure her monthly loan repayments would still be paid if she lost her job through redundancy - or developed a serious illness or disability that prevented her from working.

Some time after taking out the policy, Miss M became unwell. It was soon evident that hers was a chronic condition and she became very anxious about the effect it would have on her ability to continue in her job.

She tried to book an appointment with her GP to discuss the situation but was told she would be unable to see him for some while. He was shortly going on holiday and had no free appointments before he went.

Feeling desperate about her worsening state of health, Miss M then contacted her employer. She said she was resigning, as she saw no prospect of being well enough to return to work. Two weeks later, Miss M was able to see her GP, who gave her a medical certificate confirming her inability to work. She then put in a claim under her payment protection policy.

The insurer refused to pay the claim. It did not doubt the state of her health but it pointed out that the policy was designed to cover people who were in employment. At the time she put in her claim she had already resigned from her job, so she was not eligible for cover.

complaint upheld
We were satisfied from the evidence that - at the point at which she resigned from her job - Miss M's state of health met the policy definition of "disability". She would therefore have qualified for benefit under the policy if she had been able to get an appointment with her GP within a reasonable time.

We did not think it appropriate for the insurer to take advantage of the fact that she was unable to do this. We said that the fair and reasonable outcome in this case was for it to meet her claim.

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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.