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commercial insurance


This note explains our general approach to complaints made by businesses about commercial insurance policies.

A business may want to insure itself against standard insurance losses - for example, vandalism, flood, fire or theft. It may also want to take out protection against additional losses such as:

  • loss of profit, rent or revenue
  • "accounts receivable" - where the policyholder is owed money but is unable to identify the debt or the sum owed
  • product/public liability.

There is no "typical" commercial insurance cover. Insurers offer a wide range of standard and non-standard extensions to their policies to meet the specific needs of their business customers.

complaints we can look at

To refer a complaint to the ombudsman, a commercial business must meet the definition of a microenterprise as set out in the Financial Conduct Authority (FCA) Handbook dispute resolution (DISP) rules.

When we look at a case, we will first make sure that the business is eligible to complain to us - in addition to making our other usual checks about whether we can consider a complaint under our rules.

“sophisticated” and “unsophisticated” commercial businesses

A business with a large turnover and a developed structure - and which receives legal advice from solicitors, brokers or an in-house legal department - could be described as “sophisticated”.

In contrast, a commercial business with a very small turnover (for example, less than £75,000) - or one that is run by tradesmen - could be described as “unsophisticated”. This reflects the fact that the business is likely to be simpler in structure and may not receive legal advice.

Generally, these smaller businesses are less likely to have an in-depth knowledge of insurance issues. So if we decide that a commercial policyholder is “unsophisticated”, we may take into account the principles of good insurance practice that we apply to individual consumers when deciding a case.

However, whichever type of business is involved in a complaint, we will make a decision based on what we think is fair and reasonable in the particular circumstances. This means that - while we will take the law into account - the outcome could be different than if a business had taken the matter to court.

complaints we see

Many commercial insurance complaints we see involve similar issues to complaints about other types of insurance - like motor or buildings and contents insurance.

Generally, we approach these complaints in the same way. But there may be some differences - for example, where we take a view about whether the policyholder is “sophisticated” or “unsophisticated”.

warranties and conditions

Some commercial insurance policies contain warranties and conditions that are not found in other insurance policies. For example, public liability insurance may include "heat conditions" relating to safety precautions when using items such as blow torches. In each case, we will decide whether it is fair and reasonable for the insurer to rely on a strict interpretation of the warranty or condition in question.

If we think that a warranty or condition is particularly onerous or unusual, we will look to see whether it was clearly highlighted to the policyholder at the point of sale and/or renewal. We will also consider whether it is clear and unambiguous - and if not, we will generally say that it should be interpreted in favour of the policyholder. We take this approach whether we have decided the policyholder is “sophisticated” or “unsophisticated”.

Where an individual consumer has a claim rejected because the insurer says that they breached a warranty or condition, we look to see whether there is a direct link between the breach and the loss the consumer has suffered. If not, we are likely to tell the insurer to pay the claim. We usually take this approach to complaints involving commercial policyholders that we think are “unsophisticated”.

If we think the policyholder is “sophisticated”, we would not generally say that the insurer has to establish a direct link between the breach and the loss. However, we will check that the condition or warranty in question relates to the type of loss suffered. For example, we are unlikely to support an insurer’s rejection of a claim for flood because a specific type of burglar alarm was not fitted - although we may support the rejection of a claim for theft.

non-disclosure and misrepresentation

In cases involving individual consumers and non-disclosure, we will look to see whether a clear question was asked about whatever it was that the insurer says the consumer did not disclose.
Where we agree that a commercial business policyholder did not disclose something material to the risk - but we also find that a clear question was not asked - we are unlikely to support the insurer’s decision to “avoid” the policy (treat it as if it were never taken out).

However, if a commercial policyholder was represented by a broker, we may decide that the broker should have been aware that certain facts needed to be disclosed. In these cases, we might consider it more appropriate for the policyholder to make a complaint about the broker.

Sometimes, an insurer will say that a commercial policyholder should have known that something was "material" to the risk - and should have disclosed relevant information without being specifically asked for it.

In these cases, we will never automatically conclude that a policyholder should have known what information was “material” to the risk - and what to disclose - without being asked a clear question. However, when deciding whether to uphold a complaint, we will take into account how much knowledge and experience of insurance the policyholder is likely to have had.

The Consumer Insurance (Disclosure and Representations) Act 2012 sets out a new legal approach to non-disclosure for individual consumers. Although the Act does not apply to commercial business policyholders, the principles will apply to businesses that we decide are “unsophisticated”.

help for businesses and consumer advisers

contact our technical advice desk on 020 7964 1400

help for businesses and consumer advisers

contact our technical advice desk on 020 7964 1400

Financial Ombudsman Service for small businesses logo

Are you a small business?

From 1 April 2019, we can look at complaints from small businesses (SMEs). Head to our dedicated small business website for more information about how we can help.

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useful links

  • ombudsman news
  • The law requires us to decide each case on the basis of our existing powers and what is fair in the circumstances of that particular case.
    We take into account the law, regulators' rules and guidance, relevant codes and good industry practice at the relevant time.
    We do not have power to make rules for financial businesses.
    Our current approach may develop in the light of circumstances disclosed by further cases we receive.
    We may decide that fairness requires a different approach in a particular case.