case studies - non-disclosure

01/022

motor – non-disclosure – “accidents or losses” – whether policyholder required to disclose unsuccessful claims.

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The policyholder applied for motor insurance. The proposal form asked: ‘Have you or anyone who will drive been involved in any motor accidents or made a claim (fault or non-fault including thefts) during the last five years?’ His answer was ‘No.’

When the policyholder’s car was stolen, the insurer learnt that he had made a theft claim under his previous motor policy within the five year period. The insurer voided the policy from its start date and rejected the policyholder’s claim. The policyholder argued that he did not have to disclose his previous theft claim because the insurer concerned had decided not to meet it.

complaint rejected
The policyholder’s answer on the proposal form was incorrect. Although the question was confined to claims and did not extend to losses not claimed for, it was clearly worded: it was not limited to successful claims, nor did it ask what the outcome was. The policyholder had pursued his previous claim all the way to a conclusion and ought to have disclosed it. The insurer was fully entitled to treat the policy as void.

01/023

motor – non-disclosure – mistake – whether insurer entitled to cancel policy.

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In June 1999 the policyholder applied for motor insurance over the telephone. The insurer’s standard practice was to ask about claims made within the previous three years. The policyholder remembered that he had made a claim, but was not sure whether it fell within that time span. He maintained that he mentioned this to the insurer’s telesales operator, who told him she would check the position. When the proposal form arrived without any mention of the claim, the policyholder signed it, assuming the insurer’s investigation had revealed it was more than three years old. In reality, the insurer had not carried out any investigations, and the claim was not noted on its records.

A few weeks later, the policyholder’s car was stolen. On investigating his claim, the insurer discovered he had made a motor theft claim previously, in August 1997. The insurer refused to indemnify the policyholder for his loss, on the ground that he had failed to disclose the earlier claim on the proposal form.

complaint upheld
There was no tape-recording of the policyholder’s initial telephone call, so it was difficult to know exactly what was said. At worst, however, it seemed to us that the non-disclosure resulted from a misunderstanding, and – on a balance of probabilities – we were satisfied the policyholder had acted innocently. The insurer would only have charged a small additional premium had it known about the previous claim. In the circumstances, we asked the insurer to meet the present claim in full, with interest.

01/024

motor – non-disclosure – “accident or loss” – named driver – whether policyholder obliged to disclose named driver’s loss.

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The policyholder applied for motor insurance, answering ‘no’ to the following two questions on the proposal form:

“Has the car been altered/modified from the maker’s specification (including the addition of optional fit accessories such as spoilers, skirts, alloy wheels etc.?)

“Have YOU or ANY PERSON who will drive ... during the past five years been involved in any accident or loss (irrespective of blame and of whether a claim resulted)?”

When the insurer investigated a new claim, it came to light that the car had been fitted with oversized alloy wheels, spoilers, and chrome wheel arches, and that the policyholder’s husband, a named driver on the policy, had made two significant claims in the previous five years. The insurer refused to meet the claim and cancelled the policy from its start date.

The policyholder stated that she had bought the car with the all the modifications already fitted, and she assumed they were all part of the car’s original specification. She further explained that she did not realise her husband had made one of the two earlier claims, and that his other claim had been rejected because he had only third party cover at the time.

complaint rejected
On the evidence presented, we accepted the policyholder genuinely believed the car was not modified when she bought it. The fact remained, however, that she failed to disclose her husband’s previous claims. The question in issue was clear and unambiguous, and asked for details of any ‘loss’ irrespective of whether a claim was made. The policyholder ought, therefore, to have appreciated the need to disclose those previous incidents. By not doing so, she misled the insurer into accepting a risk it would only otherwise have agreed to cover, if at all, in return for a substantially higher premium.

01/025

household contents – non-disclosure – “property stolen, lost or damaged” – whether policyholder liable to disclose attempted break-in.

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The policyholder applied for household contents insurance. His local bank manager completed a proposal form on his behalf, which he signed. One of the questions asked was:

‘Have you or any member of your household ... had any property or possessions stolen, lost or damaged or had any claims made against you, in the last three years (whether insured or not)?’

The policyholder remembered telling the bank manager of an attempted break-in which occurred some months previously.

The advice he said he was given in reply was that, because the intruders had not gained entry into the house or stolen anything, the incident did not count as a burglary and need not be mentioned on the form.

This previous incident came to light when the insurer appointed loss adjusters to investigate two burglaries. The insurer refused to pay either claim, and voided the policy from its start date. The policyholder was aggrieved, and sought reinstatement of the policy, payment of both claims and compensation for inconvenience suffered. complaint upheld On the question as worded, the policyholder had not supplied an incorrect answer. The question would have had to be phrased differently to elicit disclosure of an attempted burglary which did not result in any quantifiable loss. Even if there had been quantifiable loss, and the policyholder had declared the attempted break-in, it was apparent from the insurer’s underwriting guidelines that it would still have been prepared to accept the risk. The insurer agreed to reinstate the policy, deal with both claims, and pay compensation of £250.

Finally, as the next case shows, insurers also need to disclose relevant information to policyholders.

01/026

motor – renewal – policy replaced – insurer failing to notify policyholder of new policy terms – whether insurer entitled to rely on new terms.

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The policyholder bought a new car in April 1998. He was given a year’s free insurance as part of the purchase arrangements. The policy provided, amongst other benefits, that if the car were damaged beyond economic repair within two years, the insurer would replace it with a new car of the same make and specification. The policy was due to expire on 23 April 1999. On 1 April, the policyholder received a letter from the dealer offering to renew the policy. The letter enclosed a new proposal form and details of the new cover but did not draw attention to any differences. The policy had a new title but was underwritten by the same insurer. The policyholder was involved in an accident in December 1999 and his car was written off.

The insurer settled his claim by paying the market value, but the policyholder contended he was entitled to a new model. The insurer explained that this benefit had been limited to the first policy and was not included in the terms of the second policy. The policyholder argued that he had been misled.

complaint upheld
The insurer had offered two years’ free insurance to some purchasers, but this was not available to purchasers of the model bought by the policyholder. He was therefore not offered renewal of his policy, only the option of taking out a new policy. However, the same policy booklet was given to both types of purchaser.

We were satisfied that the policyholder had not understood that cover under the new policy was different from that under the first one. The insurer’s agent’s offer to ‘renew’ the policy on behalf of the insurer had led the policyholder to misunderstand the nature of the cover being arranged. The insurer’s duty to notify changes in cover had not been met, so the insurer should deal with the claim as if the original policy terms applied.

The insurer accepted our view that the policyholder was entitled to be paid the balance of the cost of a new car, plus interest, together with his out-of-pocket expenses of £25.