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ombudsman news

issue 13

January 2002

round-up of cases

This selection of case summaries gives some idea of the range of cases we deal with. The individual circumstances surrounding some of the cases may be unusual, but the cases all illustrate our approach, and how we reach what we consider a fair and reasonable outcome.

Loan protection - exclusion for pre-existing medical conditions - failure to highlight exclusion - whether customer prejudiced by failure.

Mr G purchased a car from his local garage. He took out a hire purchase agreement and a loan protection insurance policy - both purchased at the garage. Nine months later he suffered a major heart attack and he has not worked since. The firm rejected his claim for the critical illness benefit because he had suffered previously from angina and generalised chest pain. The policy excluded any medical conditions for which the policyholder had sought advice in the 12 months before starting the policy. A "condition" was defined as including "any symptom of [any sickness]".

Mr G said that he had wanted cover as he had suffered a heart attack eight years previously and was concerned about his ability to continue working if he was ill again. He said he had explained this to the car salesman, but the exclusion was not pointed out to him.

complaint upheld
The firm's reliance on the exclusion for pre-existing conditions was questionable. Mr G had suffered in recent years from some generalised chest pain symptoms but his condition appeared to have been minor and reasonably stable. It was perhaps debatable whether such relatively minor symptoms could reasonably be described as symptoms of the heart attack that followed. However, this was not a matter we needed to resolve in this particular case because the main dispute rested on whether the policy had been sold properly.

Mr G had signed a declaration that he had read and understood the policy. In fact, it seemed highly unlikely that he had read and understood it. The policy wording was complex and little or no effort had been made to draw the important provisions to the attention of policyholders. In particular, the exclusions for pre-existing conditions were not highlighted in any way (either in the policy or in a customer leaflet).

Exclusions for pre-existing conditions are recognised both by the industry and by customer groups as being particularly significant and needing to be explained and drawn clearly to policyholders' attention. In this case, this clearly didn't happen and advice was either not given or misleading. Overall, the sale did not meet the requirements set down in the codes of either the General Insurance Standards Council or the Association of British Insurers.

Our general approach in these cases is to put customers back into the position they would have been in had the firm not made an error. This will often be achieved by returning the premium, as many of these customers would not have bought the policy if they had been correctly advised. In other cases, we may conclude that the customers suffered no material detriment from a mis-sale, as they would probably have purchased the policy in any event. Conversely, if the unexplained exclusion is unusual or onerous, we may require the firm to meet the claim in full, as alternative policies with wider cover may have been available.

In Mr G's case, the exclusion itself was not unusual. But we were satisfied that if he had been aware of the true nature of the policy, he might well not have bought the car at all, or he might have made more cautious financing arrangements.

On this basis, we required the firm to meet the claim in full; to meet any costs arising from Mr G's inability to make the loan repayments since the claim was made; and to pay him £300 for distress and inconvenience.

Household contents - accidental damage to carpets - exclusion for damage caused by domestic animals.

Ms E's dog died in her lounge. As it was some time before the unfortunate dog was found, the carpet was badly stained. Ms E arranged for the carpet to be cleaned but without success. The staining and foul odour was permanent. Ms E claimed under the accidental damage section of her policy for replacement carpets - valued at about £1,100 - as well as for the initial cleaning costs. The firm declined to meet the claim on the basis of an exclusion that covered damage caused by domestic animals.

complaint upheld
This was scarcely a case of damage caused by a badly housetrained animal. The dog was dead when the accidental damage occurred. It did not seem reasonable to apply the exclusion in these circumstances and we required the firm to meet the claim in full.

Travel - loss of goods when location known - reasonable steps to recover - whether gameboy game a "disk".

Mr H's son left a bag containing his "gameboy" and associated games on the back seat of the taxi that took the family to the airport on their way home from the Canary Islands. Mr H contacted the taxi firm through the resort and the missing bag was located. However, the taxi driver concerned had not returned to the airport with the bag by the time the family had to board the plane. Back in the UK, Mr H again tried (through the holiday resort) to get the bag located and returned. He had no success, so he claimed £305 for the "gameboy" and games under his travel policy.

The insurer rejected the claim - initially on the basis that the loss had not been reported to the police. It then claimed that the bag was not, in fact, lost and that Mr H had not taken "adequate steps to recover the goods" (as required by the policy). As a subsidiary point, it argued that the games should be considered as "cassettes or tapes or disks", which were excluded from cover under the policy.

complaint upheld
It seemed to us that Mr H had made appropriate and - in the circumstances - more than adequate efforts to recover the goods. It was not reasonable of the firm to require him to do more. Equally, we did not accept the insurer's argument that since the location of the goods was known, the goods were not lost. Just as if the items had been dropped from a boat and were now at the bottom of the ocean, there was no practical prospect of recovering Mr H's lost goods. Goods can be "lost" if their location is known but they cannot - for practical purposes - be recovered.

The list of exclusions from cover was lengthy. It therefore seemed appropriate to interpret the provisions narrowly and, in case of doubt, to favour the customer's interpretation. A "gameboy" game was not, strictly speaking, a disk (cassette or tape) and we therefore required the firm to meet the claim in full.

Personal accident - specified injuries - whether other injuries also covered.

On the flight home from a family holiday, Mrs M's toddler son hit her in the face, breaking her nose. She submitted a claim to her travel insurer for the policy benefit of £20,000. The insurer rejected her claim, stating that the benefit was only payable in three situations: death, loss of one or more limbs or eyes, and permanent total disablement. As none of these had occurred, it maintained it was not liable for Mrs M's injury.

Mrs M argued that the policy wording did not make it clear that only three events would give rise to the benefit. She also felt that she was entitled to be indemnified under the personal liability section of the policy. This provided a maximum payment of £2 million for any personal injury.

complaint rejected
The policy wording was unambiguous and provided for payment of the personal accident benefit only if one of the three specified events occurred. There was nothing in the policy to suggest that any other personal injury would give rise to a benefit entitlement.

As to the liability section, we did not accept that a two-year-old was capable of being held liable for the injury by a court. The insurer therefore had no responsibility for indemnifying the child against any liability to his mother. Moreover, the policy specifically excluded liability to family members.

Income protection - disability from "normal pursuits" - meaning of "normal pursuits".

Mrs B took out income protection insurance in 1981. This protected her dual occupations of nurse and housewife and would provide a weekly benefit of £50 if she became too ill or disabled to continue work.

When she became ill, the insurer rejected her claim on the ground that she was not disabled from "the normal pursuits" of a housewife. Mrs B protested, arguing that her disability prevented her from continuing with her nursing work, and that this was the situation she had intended the policy to cover. She pointed out that the policy did not define "normal pursuits" and therefore she could not tell whether her claim met the policy criteria. The insurer still maintained that no benefit was payable unless Mrs B was unable to follow the normal pursuits of a housewife. It said that this must have been clear to Mrs B because all the usual references to income had been deleted from the policy.

complaint upheld
Mrs B had clearly purchased the policy to protect her income, which was solely derived from nursing. The policy was called an "Income Protection Policy" and the the fact that it would only pay a benefit if she was also unable to perform a housewife's normal duties had not been explained to her. The wording of the policy was vague, at best, and where an insurer has drafted its contract terms ambiguously, we take the interpretation least favourable to the insurer.

Moreover, since the policy contained no definition of "normal pursuits" - it was reasonable to interpret it as referring to her occupation of nursing. Mrs B derived no income from housework and it was unreasonable to interpret the policy as meaning that benefit was not payable unless she was unable to perform housework.

We required the insurer to pay benefits to Mrs B from the date of her disability, subject to any deferred period, and to add interest to the amount it paid her.

Household buildings - heave - exclusion for damage to swimming pool when house not damaged - damage resulting from previous subsidence repairs - whether insurer entitled to rely on exclusion in relation to heave damage.

Mr E's house was affected by subsidence in 1996 and his insurer dealt with the claim. Its loss adjusters decided to stabilise the property by removing and reducing trees on both Mr E's and the next-door properties. Superstructure repairs were completed in 1998, after the property had stabilised. In 1999, Mr E noticed that his swimming pool was seriously affected by heave, which had pushed up the underlying soil and cracked the pool. There was no damage to the house.

Mr E notified the insurer and it appointed the original firm of loss adjusters and an engineer to investigate. The engineer concluded that the cracking of the swimming pool was not connected with the removal of the trees. The insurer rejected the claim. It did not accept that the damage was a continuation of the 1996 claim. The claim was therefore for new damage and only covered under the policy if the house were affected at the same time.

Mr E obtained his own engineer's report. This concluded that the damage to the swimming pool was a direct consequence of the tree management programme implemented by the insurer. However, the insurer refused to alter its decision.

complaint upheld
We appointed an independent engineer to assess the damage, and the insurer agreed to accept his conclusions. The independent engineer advised that the tree reductions had most likely caused heave of the site. He accepted that the reduction programme had been undertaken in good faith, but he was concerned that no heave predictions had been made and that the heave consequences of removing the trees had been largely ignored. In the circumstances, he did not think it would be fair for the insurer to rely on the exclusion.

The insurer accepted that it should deal with the claim and agreed that the independent engineer should take over management of the claim from the loss adjusters. It also agreed to reimburse Mr E's engineer's fee.

Motor - driving other cars - extension of cover for driving abroad - whether driving other cars abroad covered.

For many years Mrs H had held motor insurance with the same insurer. She had family in Northern Ireland and her policy covered her for driving in the Republic of Ireland and for driving other cars. In September 1999, she had an accident, hitting another vehicle while driving her brother's car in the Republic of Ireland.

Mrs H claimed indemnity under her policy against a third party claim. However, the insurer rejected the claim, saying that her brother's insurer should deal with it. It referred her to the policy, which stated: "Cover for driving other cars does not apply ... in any country outside the United Kingdom".

Mrs H argued that this was overridden by the extension, noted in the Statement of Insurance, that permitted her to drive in the Republic of Ireland. However, the insurer explained that this extension was limited to her car only. She also contended that the insurer was in breach of the law that required insurers to provide minimum cover throughout the European Union.

complaint upheld
It was only by reading the policy document in conjunction with the schedule and the Statement of Insurance that it was clear that Mrs H was not covered for driving other cars outside the UK. However, none of these documents made it plain that all three documents had to be read together. We accepted Mrs H's argument that the policy was not clear and that she should therefore be given the benefit of the doubt. She had believed she was covered for driving other cars in the Republic of Ireland and that belief was not unreasonable. We therefore required the insurer to deal with the third party claim.

As to the legal position, the legislation required insurers to provide minimum insurance cover, but did not state whether - in this type of situation - it was the insurer of the car or the insurer of the driver which should deal with any third party claim. The Road Traffic Act 1988, as amended, referred to the obligation to insure "such person ... as may be specified in the policy". In the light of this, it might be reasonable to expect the driver's insurer to accept liability. However, we did not need to determine this point as the first argument succeeded.

Mrs H had also claimed compensation for the fees her representative charged for pursuing the complaint. We only award these in very rare cases, for example, where the policyholder required legal advice in order to respond to an insurer's arguments. This was not such a case so we did not award any additional compensation.

Motor - non-disclosure - policyholder stating he had not been asked about ownership or use of car - whether insurer entitled to cancel insurance.

Mr O applied over the telephone for motor insurance for his son's car. He answered a series of questions and the insurer then sent him a statement of facts, for checking, based on the answers he had given. The statement showed that there were two drivers, Mr O and his son.

A few months later, the car was stolen and Mr O claimed compensation. The insurer's enquiries revealed that the car was registered in the son's name. Mr O and his son said they had bought the car jointly and that the son was the main user. The insurer then cancelled the policy, telling Mr O that if it had known these facts, it would have charged a premium six times higher.

complaint upheld
The insurer did not ask Mr O to sign a proposal and it did not keep any record of his answers to its questions. Although it maintained that Mr O had described himself as the "main user", this information was not recorded in the statement of facts and it was impossible to verify whether he had been asked this question. We required the insurer to deal with the claim on the ground that there was insufficient evidence that Mr O had failed to disclose all relevant information.

Livestock - cost of veterinary treatment - exclusion for illnesses arising within 14 days of cover - whether insurer's failure to highlight exclusion prejudiced policyholder.

Over a period of several years, Mrs S had insured a number of different horses. These horses did not belong to her, but were lent to her by their owners for long-term use. On 13 March 2001, one of these horses - Chino - was due to be returned to its owner. Mrs S telephoned the insurer that morning to transfer the policy cover from Chino to another horse - Sparky. The insurer agreed to do this immediately.

Later that day, Mrs S's daughter found that Sparky was unwell. The vet diagnosed colic and the total cost of treatment came to over £4,000. Mrs S claimed under the policy but the insurer rejected her claim on two grounds. It stated that the policy:

  • did not cover any horse which the policyholder did not own; and
  • excluded claims for any illness that arose within 14 days of the policy's start date.

Mrs S argued that she had not owned any of the horses she had insured, and she pointed out that the insurer had never raised this matter before. She also said that the insurer had failed to mention the 14-day exclusion, and she presented evidence that Sparky had been in good health on the morning she arranged the insurance for him.

complaint rejected
The insurer conceded that it would cover horses on long-term loan to a policyholder, so that issue was no longer relevant. However, even if we accepted Mrs S's assertion that the exclusion had not been drawn to her attention, it was hard to accept that that failure had prejudiced her position. Sparky had been well when the insurance was taken out, so even if the insurer had pointed out the exclusion, we believe she would still have gone ahead and obtained cover from this insurer.

Household contents - proof of loss - policyholder failing to cooperate with insurer's enquiries - whether insurer justified in rejecting claim.

On 8 May 2000, Mr S took out household contents insurance, with additional cover for specified personal belongings, including legal textbooks and a computer. Two weeks later, he set out to travel by train to Glasgow, where he was due to catch a flight to Frankfurt. As he had a few minutes before the train went, he left the station to buy food from a supermarket and was mugged. He submitted a claim for the computer and textbooks; a silver cigarette case; £300 cash; clothing and his air ticket (a total of some £5,000).

The insurer's enquiries revealed numerous discrepancies. The film from the CCTV cameras in the station did not support Mr S's account of the mugging, although he provided more than one version of events. Mr S refused to sign the statement taken by the insurer's investigator and instead submitted his own summary. The insurer refused to make any payment, stating that Mr S had failed to prove that the incident had occurred or that he had owned the items claimed for.

complaint rejected
It is a claimant's responsibility to prove that a loss has occurred and that the loss is covered by the insurance policy. There were several unsatisfactory aspects to Mr S's account that he had failed to resolve. This, together with Mr S's failure to cooperate with the insurer's enquiries, justified its refusal to meet his claim.

Personal accident - permanent total disablement - accident occurring after policy start - disablement due to combined effects of two accidents - whether benefit payable.

Mr M was an avionics engineer with the RAF. In 1990, he injured his back but recovered after treatment. He took out personal accident insurance in December 1993. In November 1994, Mr M had another back injury, again returning to work after a temporary absence. However, following a further injury in May 1996, spinal instability was diagnosed. An MRI scan in 1997 showed that he had a prolapsed intervertebral disc. Several operations were performed but Mr M did not recover and he was discharged from the RAF on medical grounds in January 2000.

Mr M submitted a claim under his personal accident insurance for the lump sum, permanent total disablement benefit of £10,000. The insurer accepted that Mr M was permanently disabled, but concluded that it was the accident in 1990 that had caused the disability. As this had occurred before the insurance came into force, his claim failed.

complaint upheld in part
The consultant had concluded that "on a balance of probability, [Mr N] did have a prolapsed disc following the incident that occurred in 1990", even though Mr N had been passed fit for work by the RAF after recuperation. We were satisfied that the injury which eventually resulted in Mr N's disablement was in 1990 and that the incident in 1996 simply made it worse.

However, Mr N had not been given a copy of the full policy terms, merely a brochure describing the cover. This began with the words "If an accident were to happen to you, how would your finances cope-". The benefits were said to be payable "If you are disabled by an accident". This wording implied that a policyholder would be entitled to benefit if he were disabled by an accident after the policy had been issued.

The incident in 1996 had, according to the consultant, made the original condition significantly worse. We therefore put it to the insurer that it should make a payment of £5,000 - in other words 50% of the full benefit. It agreed with our conclusion.

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.