group insurance policies - a question of jurisdiction

We are occasionally asked whether a complaint about a group insurance policy is within our jurisdiction. Group insurance policies are policies purchased by organisations (typically employers) for the benefit of individuals. Typical examples are medical expenses (private health), critical illness and permanent health insurance policies. Other policies including dental costs and travel may be provided in a similar way. The individual does not have a policy with the insurer, but the benefits of the policy will normally flow to the individual rather than to the organisation which has entered into the policy.

We will consider each case individually but, in our experience, most complaints are within our jurisdiction. In assessing the complaint, we take into account a number of factors, but the overriding test is whether the benefits of the policy flow to the individual without the employer exercising any practical discretion over the provision of those benefits. Looking at whether the individual is involved in the claims process, and whether benefits are paid (or provided) directly to the individual may offer guidance on this. For example, under an employer-provided private medical insurance policy, the employee typically makes any claim directly to the insurer and discusses it directly with the insurer, and benefits are provided directly to the individual. We would consider this type of policy to be within our jurisdiction. Even where benefits are paid to the employer, this fact is not necessarily decisive. Where this happens purely for administrative reasons (as is often the case in permanent health insurance) then the dispute is still likely to be within our jurisdiction.

Examples of group policies outside our jurisdiction include cases where the benefit is for the organisation, not the individual (such as a ‘key man’ insurance) or where the benefit provided to the individual is not directly related to the insurance policy. An example here might be where a firm promises its employees extended sick pay under the terms of their employment contract, and then decides to insure itself against some of these costs. The employee’s dispute in such cases would be with the employer – not the insurer.

case study – commercial insurance

We have always dealt with a minority of commercial insurance policies but anticipate receiving a higher volume after ‘N2’ (1 December 2001 – the date when the Financial Ombudsman Service acquires its full powers). The following case study illustrates a commercial insurance complaint we received recently.

07/23
commercial – contractor’s liability – policy condition – ‘suitable fire extinguishing appliance’ – whether spray bottle met terms of condition.

Mr S, a contractor, took out liability insurance. In 1997, while two of his employees were working on the exterior of a building, using a blowtorch to burn paint off a window frame and doorframes, the window frame caught fire. They tried to put out the fire with a 5-litre spray bottle of water. This was insufficient to extinguish the fire, so they broke down the door and covered the flames with a duvet. However, their efforts were unsuccessful and extensive damage had been caused by the time the fire service arrived and put out the fire.

Investigation established that the window was not fully sealed, as it had appeared to be. At some time a hole had been drilled through the sealed, double-glazed aluminium frame and subsequently concealed with filler. Mr S stated that the fire would not have spread to the curtains inside the building if this hole had not been there. He provided an expert’s report supporting his argument. The insurer repudiated liability on the ground that Mr S had not complied with a policy condition which required ‘suitable fire extinguishing appliances to be kept available’. It argued that the 5-litre spray bottle did not meet this condition as it would only damp down a fire. It also contended that the bottle’s capacity was only 1.25 litres.

complaint upheld
We had to consider whether the spray constituted a ‘suitable fire extinguishing appliance’ in accordance with the policy condition. There was insufficient evidence to determine the spray bottle’s precise size, but we considered that it satisfied the terms of the condition. The policy did not contain any guidance on the insurer’s criteria and we did not agree that the bottle was so obviously inadequate that it was unsuitable as a fire-extinguishing appliance.

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