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ombudsman news

issue 25

February 2003

insurance case studies — non-disclosure

The following cases illustrate other non-disclosure complaints we have considered recently.

motor - non-disclosure - negligence - whether negligent non-disclosure justified cancellation of policy - whether proportional settlement fair

Mrs A insured her car through an insurance broker in August 1999. When her car was stolen in June 2001, she contacted the firm to make a claim. The firm discovered that she had a total of four convictions for speeding. In September 1994, September 1995 and April 1996 she had been convicted for driving at over 30 mph in a 30 mph area. In March 2000 she was convicted for exceeding a 60 mph limit.

The firm refused to meet Mrs A's claim because she had not mentioned the convictions. It said that both when she first applied for the insurance, and again when she renewed the policy in August 2000, it had specifically asked whether she had received any convictions in the previous five years.

Mrs A said that the broker had completed the proposal form for her and she had simply signed it. She said she had not intentionally concealed any information from the firm. However, since her offences were relatively minor, she considered that even if she had told the firm about them, it would still have insured her.

complaint upheld in part
The question on the proposal form about convictions was clearly worded. And even though it was the broker, not Mrs A, who had completed the form, Mrs A should have checked the answers carefully before she signed it. However, we considered that her failure to do so was an oversight, rather than a deliberate attempt to conceal the convictions from the firm.

The firm agreed that the convictions were relatively minor. It also agreed that it would still have insured her if it had known about them. But it said that it would, initially, have charged her 12% more for her premiums. It would then have charged a further 5% when she renewed the policy in 2000. So her failure to disclose her convictions meant that she had paid less than she should have done.

In the circumstances, we felt that a fair and reasonable settlement would be for the firm to meet the claim on a proportional basis. The firm agreed and paid Mrs A 85% of the value of her claim.

household contents - non-disclosure - clear question - no evidence question asked - whether incorrect answer entitled firm to cancel policy

In September 2001, Mr C arranged household contents insurance through an insurance broker. Several months later, Mr C was burgled and made a claim under his policy.

In the course of the firm's enquiries, it discovered that, following a domestic dispute in January 2001, Mr C had been convicted of three offences of causing actual bodily harm to police officers.

The firm said it would not have issued the policy if it had been aware of these convictions and it cancelled the policy. Mr C complained unsuccessfully to the firm and eventually he came to us.

complaint upheld
After Mr C had visited the broker, the broker sent him a printed statement. This incorporated the questions the broker had asked and Mr C's replies. The statement included a heading "non-motoring convictions (relating to you or any other permanent resident)". The space under this was left blank.

When we asked Mr C why he had not disclosed the convictions when he applied for the policy, he said he had told the broker about them. The broker denied this.

We accepted that the existence of the convictions constituted material information that the firm needed in order to assess whether it would insure Mr C. We also accepted that the firm would not have insured him if it had been aware of his convictions. However, there was no evidence that he had deliberately withheld information when he applied for the insurance.

There was a space for details of non-motoring convictions on the printed statement that the broker sent Mr C. But there was no evidence that the broker had asked about convictions during their meeting.

Mr C had not been asked to check the statement, or even to sign and return it. And neither the broker nor the firm had asked Mr C to sign a proposal form. We therefore considered the sale to have fallen short of good industry practice.

Mr C had not attempted to conceal his convictions from the firm's investigator when the firm was looking into his claim. We concluded that his failure to tell the firm about the convictions when he applied for the insurance was innocent. So we required the firm to meet the claim and to pay him £200 for maladministration, since it had cancelled his insurance without having any proof that he had failed to answer its questions.

income protection - non-disclosure - duties of a "company director" - whether firm entitled to cancel insurance for non-disclosure of manual duties

When Mr F applied for income protection insurance, he said he was a "company director" and described his work as "inspecting construction sites and training workers in health and safety awareness". Asked whether his job involved "manual or outdoor duties", he answered "no".

A year later, poor health forced him to stop work and he made a claim on the policy. In answer to a question on the claim form about the physical requirements of his work, Mr F said that 30% of his normal working day consisted of driving, 30% climbing ladders, 5% carrying heavy items, 5% lifting heavy items, 10% crawling or kneeling and 20% other physical activity. The firm cancelled the policy. It already knew that Mr F had a heart valve disorder and it said it would never have issued the policy if Mr F had disclosed the true extent of his physical activities at work.

complaint rejected
Mr F admitted that he did carry out all of the physical activities he mentioned on the claim form. But he said that - on reflection - when he had completed the form, he had overestimated the amount of time he spent on these activities.

In our view, the way in which Mr F answered the firm's questions when he first applied for the policy gave the clear impression that he was not involved in any outdoor or manual work. Mr F had given minimal information about his work, even though the form included a space for applicants to describe their duties fully.

Because of Mr F's medical history, if the firm had known that he was involved in heavy manual duties on construction sites, it would not have provided insurance. We concluded that his answers had misled the firm and that it was justified in cancelling the policy from its start date.

critical illness - non-disclosure - continuing duty of disclosure until policy in force - whether failure to advise firm of medical referral innocent - whether firm took sufficient steps to make assured aware of continuing duty

In March 2000, Mr M applied to the firm, through a financial adviser, for life assurance to protect his mortgage. He rang the firm on 9 May, as he still had not heard whether his application had been successful. He was told there had been a delay as the firm was still waiting for his medical records from his GP.

The firm finally wrote to Mr M's adviser on 23 May, saying it had accepted the application and enclosing a letter of acceptance. This letter reminded Mr M that he had a duty to notify the firm if there had been any change in his details since he applied for the policy.

The policy took effect on 12 June 2000. Some nine months later, Mr M contacted the firm to say that he had been diagnosed with prostate cancer and that he wished to claim under the policy for the full critical illness benefit of £30,000.

When the firm obtained a report from Mr M's GP, in connection with the claim, it saw that Mr M had consulted his doctor on 3 May 2000 with symptoms for which he was referred to a cancer specialist. The firm cancelled Mr M's policy. It said that when he received the acceptance letter, he should have disclosed the fact that his GP had referred him to a specialist.

Mr M said that he had never received an acceptance letter. He also argued that, since the firm had not received his GP's notes until after the consultation had taken place, he had assumed it was aware of the situation.

complaint upheld
We were satisfied that Mr M had not received the acceptance letter. The adviser had failed to forward it to him and it was later found in the adviser's files.

The firm insisted that it was irrelevant whether or not the adviser had sent Mr M the letter. It said its application form made it clear that anyone applying for insurance had to tell the firm of any change of circumstances that arose after they had completed the form. We did not agree that the application form made this sufficiently clear.

We also noted that although the firm had told Mr M on 9 May 2000 that it was still waiting to receive his records from his GP, it had actually received them in early April, some weeks before the consultation in question took place.

We considered that the firm's practice of sending the acceptance letter to the customer's adviser, without requiring the adviser to post it on, was likely to cause confusion and was not consistent with good industry practice.

We concluded that Mr M had not deliberately failed to disclose details of his referral to a specialist. We required the firm to meet the claim and to pay Mr M £200 compensation for distress and inconvenience.

household buildings - non-disclosure - subsidence - whether policyholder's answers were to "the best of his knowledge"

When Mr W took out a new household insurance policy in March 2001, he stated, in response to a question from the firm, that his house had never been affected by movement of any kind, such as subsidence, heave, landslip or settlement.

In August that year, Mr W notified the firm that cracks had developed in the walls of his house. The firm's loss adjuster concluded that the damage was due to subsidence. The firm asked Mr W for a copy of the structural survey he had obtained before he bought the house in 1997. The surveyor's report concluded "The property is affected by structural movement evident in severe cracking to the gable elevation. This appears significant and likely to be progressive."

During the firm's enquiries, it also became aware of a report on the house that had been prepared in 1996, shortly before Mr W bought the property. Although this recommended repairs to the drains, they had never been carried out.

The firm cancelled the policy, saying it would never have been issued if the firm had known about the existing problems.

Mr W said the firm should not have done this, as he had answered the questions on the application form correctly, to the best of his knowledge.

complaint rejected
When we inspected the application form, we noted that the firm had asked a very clear question about any incidence of subsidence or other kinds of movement. However, Mr W's reply had not fairly represented the true picture and had made no reference to the findings of the surveyor he consulted before he bought the house.

We concluded that the firm had acted correctly in cancelling the insurance.

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.