Insight in depth: underinsurance, misrepresentation and non-disclosure

Our findings

• Misrepresentation and the law

  To be a misrepresentation, the information in question must be factually untrue at the time it is given. Valuations are opinions, not facts, but consumers are normally taken to declare that the answers they give are true to the best of their belief, so they state a fact - that they honestly believe the valuation is accurate. And, depending on the circumstances, a consumer’s valuation of their own property can sometimes imply another representation of fact – that they’ve got reasonable grounds for thinking their valuation is correct.

  Although silence is not normally a representation, if an insurer asks the consumer when renewing a policy to amend or confirm the details they’ve previously given, and the consumer fails to do so, that can be a representation that nothing has changed.

Case studies

In this section we present a selection of illustrative case studies from complaints resolved by the Financial Ombudsman Service that illustrate how misrepresentation and underinsurance can affect consumers’ home, motor and travel insurance claims and policies. That is, they seek to represent the range of complaints we see, rather than necessarily being exact representations of individual cases – and details may be changed to protect the anonymity of those involved. The case studies include some which appear similar, but where the outcomes ultimately differ according to the individual circumstances of the complaint, helping to show the impact on outcomes between circumstances where a consumer has taken ‘reasonable care’, and where they’ve been ‘reckless’.

Home insurance

We see a number of cases where consumers have incorrectly valued their possessions – either because they didn’t take enough care over calculating the value, or because they gave a figure for how much money they wanted as a pay-out in the event of a claim, rather than the actual total cost of their possessions.

As a result, consumers may find they have insufficient cover at the point they need to make a claim. But at this point, it’s too late – and they may receive nothing or only a small fraction of the pay-out they would otherwise have got.

• Case study 1: Sofia undervalues jewellery taken in a burglary, and her policy is “avoided” as a result

  What happened

  Sofia contacted us after her house was burgled. She explained that she had inherited many family heirlooms including jewellery, and that this jewellery had great sentimental value, as well as financial. Unfortunately, some of it was stolen in the burglary.

  Sofia told us she had insured the items for around £10,000. But when she’d made a claim, the insurer had told her the replacement value of all the items at the property was closer to £60,000. They said that if they’d known this, they wouldn’t have insured her at all, because their limit for contents cover was £50,000.

  As a result, the insurer “avoided” Sofia’s policy. This meant there was no policy in place and so her claim couldn’t be paid. Sofia didn’t disagree with the insurer’s valuation, but thought their response was unfair. And she was also upset at the prospect of having to declare the “avoidance” to future insurers, which might make it harder and more expensive for her to get insurance in future. So, she asked us to reverse the insurer’s decision.

  How we resolved the complaint

  We looked at the questions the insurer had asked Sofia when she’d taken out the policy, to see if it was clear what they wanted to know, and what information she should provide.

  The relevant question on the online application was “What would it cost to replace all of your contents, as new, including all high-risk items such as jewellery?” We thought this question was clear. We also noted that there was a prominent warning on the online application form that said consumers needed to take care to give accurate answers otherwise all or part of their claim might not be paid - or their policy might be cancelled.

  We asked Sofia about her answer. She said she hadn’t ever really thought about the value of the items. They’d been in her family for many years, and although they held a lot of sentimental value, she’d assumed they weren’t particularly valuable financially.

  There was no evidence that Sofia had acted in a reckless way, or deliberately misrepresented the jewellery’s value. But in our view, she’d acted carelessly when answering the insurer’s questions. Rather than taking the time to think about what the jewellery was worth, or having the jewellery valued, she’d instead made an assumption that turned out to be wrong.

  We also asked the insurer what they would have done if Sofia had told them that the true value of her contents was around £60,000. They provided underwriting information to show they didn’t offer policies to anyone with more than £50,000 worth of contents. So they wouldn’t have offered Sofia a policy at all if they’d known what her jewellery was worth.

  Although we were sorry about what Sofia had been through, we decided the insurer had acted fairly in their decision to “avoid” her policy, and not to pay her claim.

• Case study 2: Jo and Max don’t tell their insurer the full value of their jewellery – meaning their policy is “avoided”

  What happened

  Jo and Max made a complaint to us after their insurer rejected their claim for stolen jewellery and “avoided” their policy as though it had never existed. They explained that their insurer had initially accepted the claim, but later told them they hadn’t properly insured their valuable items. In particular, they hadn’t told their insurer about any items over £1,500, which included the stolen jewellery.

  Jo and Max didn’t think they’d been treated fairly. They said they’d complained to the insurer, but it wouldn’t change its decision – so they wanted us to look into their concerns.

  How we resolved the complaint

  We looked at the policy documents and could see that Jo and Max had requested £75,000 contents cover, and £20,000 for valuable items when taking out their policy online. We also saw that the documents said clearly that any valuable items worth more than £1,500 should be specified separately.

  We asked Jo and Max to tell us why they’d not specified any of their valuable items on their policy. They explained that they’d intended to “self-insure” anything above the £1,500 single article limit, meaning they had decided not to insure their valuables for any more than the limit, and would pay the extra should they be lost or stolen.

  We explained to Jo and Max that they’d had a responsibility to give their insurer all the information it asked for to assess the risk – including what the correct premium should be, as well as whether there should be any special terms applied to the policy. Their decision to self-insure their valuable items meant the insurer hadn’t had all the information it needed.

  Jo and Max’s insurer estimated that a more accurate figure for the valuable items was £50,000. They showed that they wouldn’t have offered the couple cover if they’d known this.
  We were sorry that Jo and Max had been the victims of a burglary. But taking everything into account, we decided the insurer’s decision to “avoid” the policy and not pay the claim was a fair one.

• Case study 3: Eunice doesn’t update her insurer about the value of a watch, leaving her out of pocket when she claims

  What happened

  Eunice complained to us after making a claim on her contents insurance for a lost watch. She told us she’d had her policy for 15 years, and when she’d initially taken it out, she’d included individual cover for the watch worth around £1,500.

  At the time of the claim, the watch in question had increased in value to around £5,000 – and Eunice felt that the insurer should pay what the watch was worth. However, her insurer was saying that, at the point she renewed the policy, she’d told them that she was happy for the claim limit for the watch to remain the same. As a result, they were unwilling to increase their offer above the claim limit.

  Eunice felt she’d been left out of pocket, and she wasn’t able to replace the watch. So she asked for our help to resolve the problem.

  What we said

  We looked at the policy documentation to see what information was included about policy limits. The terms of engagement had a section on underinsurance, which said:

  “You must provide us with accurate information to ensure we can offer the correct level of cover … Reviewing your sums insured regularly throughout the year and at renewal is also very important, as changes to your circumstances could affect these values.”

  We also looked at what happened when the policy was renewed each year. The insurer said that it contacted Eunice at renewal every year to ensure she was happy with the level of cover. They provided records showing that when they hadn’t been able to get through on the phone, they’d left messages asking them to call them back to go through the policy. And they’d said that if they didn’t hear from her, then the policy would be automatically renewed.

  In the years that the insurer had been able to speak to Eunice, she’d confirmed the level of cover was adequate and no changes to the policy were required. The sum insured for the watch had increased slightly over time as the limit was index-linked and increased with inflation.

  Each year, Eunice had received renewal documents showing the level of cover she had each year, including for specified individual items: in this case, the watch. In our view, the level of cover was clearly displayed – and it was Eunice’s responsibility to ensure that this matched the watch’s current value.

  Having reviewed all the evidence, we decided the insurer was entitled to only pay up to the claim limit on the policy. So we didn’t tell them to increase their offer.

Motor insurance

We see cases where consumers are using their car for commuting, but that this is something they hadn’t told their insurer when taking out the policy. Insurers might consequently refuse to meet a customer’s claim following an accident, because it hadn’t been told all the information it said it needed.

We see cases where consumers don’t disclose a modification made to their car – something which might affect the car’s risk profile, as well as the premium the insurer would have asked for had it known about the alteration.

We also see cases where consumers have changed their car mid-way through the policy term, but don’t update their insurer. Case study 6 underlines the importance of taking care to give accurate details even part-way through a policy term to avoid the risk of a policy being avoided.

• Case study 4: Mark carelessly misrepresents how he uses his car, so his claim is settled proportionately

  What happened

  Mark contacted us after being involved in a car accident. He explained he’d been driving home from work when he’d hit another car.. His insurance company had sent a claims investigator to interview him and were now saying they wouldn’t cover his claim because he hadn’t told them he’d be using his car to commute.

  Mark said he hadn’t realised he wasn’t covered for driving to work – and he’d complained to his insurer that his policy documents weren’t clear. But they’d replied to say that they didn’t agree, and Mark had now been told he’d need to go to court for driving without insurance. Feeling he’d been treated unfairly, Mark asked for our help.

  How we resolved the complaint

  We could see that the insurer had asked Mark what he used his car for: “social, domestic and pleasure” (SDP), “SDP and commuting” (SDPC), or “SDPC and business”. Mark had chosen SDP. And the level of cover was clear on the paperwork he’d been sent.

  We asked Mark about this. He sent us documents relating to previous policies with other insurers, where the SDP cover had included driving to and from work. He said he had just assumed his current policy would work in the same way as his old ones. From the insurer’s records, we could see Mark had called to amend his policy immediately after his interview with the claims investigator, which he said was when he’d discovered he didn’t have the right cover.

  We explained to Mark that, under the law, people buying insurance need to take reasonable care not to make a misrepresentation about what cover they needed. He’d been careless in
  our view, and should have read the documents he’d been sent.

  However, given everything we’d seen, we didn’t believe he’d deliberately tried to mislead the insurer. And there were certain remedies under CIDRA that they should have turned to – rather than saying Mark was driving without insurance and refusing to consider his claim.

  The insurer confirmed that if they’d known Mark was going to use his car for commuting, they would have covered him, but charged more. The difference was a few pounds; Mark had paid well over 90% of the correct premium.

  We told the insurer to consider Mark’s claim under the policy terms, and to pay any claim proportionately. We also told them to write a letter confirming that Mark hadn’t been driving without insurance, and to pay him compensation (in our “substantial” band) to address the distress they’d caused by initially suggesting he had.

• Case study 5: Priya doesn’t realise her car has been modified, so we say it’s fair for her claim to be settled in full

  What happened

  Priya asked for our help after her insurer “avoided” her car insurance policy – a term meaning that they treated the policy as if it had never existed. She explained she’d made a claim following an accident. However, the insurer was saying she hadn’t told them about her car’s alloy wheels – and had accused her of not telling them her car had been modified. She said she’d only realised her car had been modified when the insurer sent an engineer to inspect her car, who notified the insurer that it had been fitted with non-manufacturer alloys.

  Priya felt the insurer had acted unfairly. She said she’d bought the car second-hand, and had no idea that the alloys had been added. She’d complained, but the insurer had stuck by their decision – so she asked us to get involved.

  How we resolved the complaint

  One of the questions Priya’s insurer asked when she bought her insurance policy was whether her car had been modified in any way. Priya had responded saying it hadn’t.

  CIDRA says that there is a duty of care on the consumer not to make a misrepresentation, and that the standard of care required is that of a reasonable consumer. So we needed to decide whether Priya had taken reasonable care not to make a misrepresentation. We didn’t have any reason to doubt what she told us about the alloy wheels being added to the car by the previous owner. And there was no evidence that the seller had made her aware of this, The fact the engineer, an expert, was able to spot the alloys wasn’t a reasonable argument for the insurer to “avoid” the policy.

  Taking everything into account, we didn’t agree with the insurer that Priya knew, or didn’t care, that the information she’d provided the insurer wasn’t right. So we asked the insurer to reinstate her policy and reconsider her claim within the policy limits.

• Case study 6: Jon deliberately doesn’t tell his insurer about modifications to his car when he made a mid-term change to his policy, so it’s fair for his insurer to cancel his policy

  What happened

  Jon contacted us after his insurer turned down his claim following the theft of his car. The insurer was saying they hadn’t known about the car’s expensive sports wheels – and that if they had, they wouldn’t have offered him cover at all.

  Jon had disputed the insurer’s decision, but they were still refusing to pay out. In fact, they’d said they’d be “avoiding” his policy altogether, as if it had never existed.

  John didn’t think he’d been treated fairly, so asked us to look into his complaint.

  How we resolved the complaint

  John explained that he’d changed his car mid-way through the policy term – and at that time, he’d spoken to the insurer to update his details. We reviewed the insurer’s records, which confirmed that Jon had started off with a VW Polo, then switched to a VW Golf six months later.

  We asked the insurer for a recording of their phone call with Jon from that time. During the call, the insurer asked Jon several questions about his new car – one of which was whether it had been modified in any way from the manufacturer’s original specification. The insurer had given some examples of modifications, including alloy or sports wheels. Jon replied that the car hadn’t been modified in any way.

  We also listened to the call Jon made to report his new car as stolen. During this call, he’d told the insurer that it had expensive sports wheels, which he’d had fitted when buying the car – and which he thought put at least £1,000 on its value.

  We asked Jon about this. He said he’d not thought about it very carefully at the time. He said he’d just been keen to get the car insured at a good price as quickly as possible, so he could go and pick it up. The new wheels had already been fitted before he took out the policy.

  In its response to Jon’s complaint, the insurer had said he hadn’t taken reasonable care not to make a misrepresentation. It said it had a very strict approach to cars with non-standard sports wheels and didn’t insure them at all.

  It was in this light that it had decided to “avoid” his policy from the date he added the car. And it had also refused to refund any of the premium, as it felt Jon had deliberately hidden the fact the car had sports wheels to get a lower premium.

  Given everything we’d seen, we agreed with the insurer’s approach – and didn’t uphold Jon’s complaint.

Travel insurance

In travel insurance cases we see, the most common examples tend to centre on consumers being left without cover and forced to pay expensive medical bills abroad, because the insurer says it wasn’t made aware of relevant information about their health.

• Case study 7: Eva isn’t asked clear questions about her medical history – we say her claim should be paid in full

  What happened

  Eva asked for our help when her insurer rejected her travel insurance claim after she’d fallen ill with a chest condition while on holiday. She explained she’d told the insurer about three pre-existing medical conditions when she bought the policy, which they had agreed to cover. However, they were now saying she hadn’t told them about other problems she’d recently had with her chest.

  Eva disagreed with the insurer. She said the other conditions the insurer was pointing to were related to the ones she’d disclosed. But the insurer wouldn’t change their decision, so Eva brought her complaint to us.

  How we resolved the complaint

  We asked the insurer for more detail about why they’d rejected Eva’s claim. They said that they’d looked into Eva’s medical history, and found she’d visited her GP and taken medication for a number of chest infections in the years before buying her policy. The insurer believed Eva’s claim was related to these conditions – and that she’d been “reckless” in not disclosing them, meaning they were entitled not to pay out.

  When we asked Eva about this, she confirmed she’d visited her doctor with chest infections. But she said she’d been told it was her pre-existing conditions that made her prone to infections. So she hadn’t realised she was supposed to disclose them as something separate.

  Eva had bought her travel insurance over the phone, so we listened to the conversation she’d had with the insurer. We heard the insurer ask Eva several clear questions about her medical conditions. In turn, Eva told the insurer about three conditions, as well as a number of others she’d had longer ago.

  The insurer had then asked some further questions about the three conditions, including how many different types of medicine she was taking. Eva said she was on several different medications and offered to read off a list it seemed she was looking at during the phone call.

  But the insurer had said they didn’t need this information: they just needed to know what the underlying conditions were. Eva also mentioned that she’d had chesty colds over recent years, but the insurer didn’t ask any further questions.

  Having listened to the call in full, we disagreed that Eva had been “reckless”, or been trying to get a lower premium. In our view, she’d willingly offered information about her medical history, and had answered specific questions to the best of her knowledge.

  The insurer had stuck to their script. But if they’d let Eva tell them about her medication – or picked up on her comment about having colds – she might have volunteered the information they were saying she’d withheld.

  The insurer said they would have covered Eva if she’d told them more about her medical history, but our view was that they hadn’t asked sufficiently clear questions to get all the information they needed. Taking all the circumstances into account, we thought Eva had taken reasonable care and we told the insurer to pay the claim in full.