Declined house insurance claim CCJ

Aretnap

uk1 said:

Hi, I agree with your general point but if you apply for say house insurance and fail to declare that the house is built on an old coal mine, you might have made the proposal in ignorance and in good faith, but if you then make a subsidence claim when the house dissapears into a hole, the insurer might accept that you genuinely didn't know, but could reasonably refuse the claim on the basis that if they had known of the fact then they wouldn't have insured.

Insurers should not be compelled to accept risks that they would have declined to have accept if they had known.  That seems both obvious and fair.   Otherwise you have a "cheats charter" where you can fail to disclose but have guaranteed cover. . That seems to me to be IMHO reasonable and I think in line with ombudsmans' decisions.

You might think that, but it's not what the law says, nor what the Ombudsman says. Provided the customer took all reasonable care to ensure that the information they provided is correct, the insurer has no right to void the policy. This can mean that the insurer is occasionally stuck with a risk that they wouldn't have accepted had they known about it. The Ombudsman has indeed compelled them to accept such risks; for example in the case of the modified car that I linked to earlier.

That seems fair enough to me. Insurance companies are big boys, paying claims is what they do for a living, and the risk that they might end up having to pay a small number of extra subsidence claims due to old mineshafts that nobody knew about is a something that they can factor into their general calculations. It's certainly fairer than the customer having to bear the cost of losing his home because of a risk that he didn't know about, and couldn't reasonably have been expected to find out about.

It's not a cheat's charter because by definition it doesn't apply to cheats - or even to people who make careless mistakes in good faith. It only applies to people who provided incorrect information in spite of having taken all reasonable care not to do so. The large majority of people who fail to disclose will still end up with their cover cancelled, or at least reduced. (I don't have a strong view on whether it applies to the OP's partner, but I do think it's worth him at least making the argument).

uk1

Aretnap said:

uk1 said:

Hi, I agree with your general point but if you apply for say house insurance and fail to declare that the house is built on an old coal mine, you might have made the proposal in ignorance and in good faith, but if you then make a subsidence claim when the house dissapears into a hole, the insurer might accept that you genuinely didn't know, but could reasonably refuse the claim on the basis that if they had known of the fact then they wouldn't have insured.

Insurers should not be compelled to accept risks that they would have declined to have accept if they had known.  That seems both obvious and fair.   Otherwise you have a "cheats charter" where you can fail to disclose but have guaranteed cover. . That seems to me to be IMHO reasonable and I think in line with ombudsmans' decisions.

You might think that, but it's not what the law says, nor what the Ombudsman says. Provided the customer took all reasonable care to ensure that the information they provided is correct, the insurer has no right to void the policy. This can mean that the insurer is occasionally stuck with a risk that they wouldn't have accepted had they known about it. The Ombudsman has indeed compelled them to accept such risks; for example in the case of the modified car that I linked to earlier.

That seems fair enough to me. Insurance companies are big boys, paying claims is what they do for a living, and the risk that they might end up having to pay a small number of extra subsidence claims due to old mineshafts that nobody knew about is a something that they can factor into their general calculations. It's certainly fairer than the customer having to bear the cost of losing his home because of a risk that he didn't know about, and couldn't reasonably have been expected to find out about.

It's not a cheat's charter because by definition it doesn't apply to cheats - or even to people who make careless mistakes in good faith. It only applies to people who provided incorrect information in spite of having taken all reasonable care not to do so. The large majority of people who fail to disclose will still end up with their cover cancelled, or at least reduced. (I don't have a strong view on whether it applies to the OP's partner, but I do think it's worth him at least making the argument).

Hi,

Take a look at case studies 1 and 2.

https://www.financial-ombudsman.org.uk/data-insight/insight/insight-in-depth-underinsurance-misrepresentation-non-disclosure

FlameCloud

I'd be interest in the though process re the legislation side.
S5 of the CIDRA says a misrepresentation is either deliberate/reckless or careless. Its the first two if the consumer knew, or did not care that it was untrue or misleading. It is careless if it was none of these things (S5.1-5.3)

Schedule 1, Part 1, Careless Misreps, Claims, Point 5 says:

If the insurer would not have entered into the consumer insurance contract on any terms, the insurer may avoid the contract and refuse all claims, but must return the premiums paid.

The FOS ruling you mention re the car mods is odd, and there is presumably a back story to it. They obviously do not have to directly apply the Law, but even the case studies on the page you link to suggests that they follow it generally, and the case studies linked to suggest they follow this-

Voiding the policy

If you wouldn't have offered the policy at all, you’re entitled to void the policy. This means the policy will be cancelled from the date the misrepresentation occurred – either the start of the policy or a later renewal. If there’s an ongoing claim, you won’t have to pay it because the voidance will mean that there was no policy in force when the damage occurred.

In these cases, you’ll need to refund the customer’s premiums back to the date of cancellation. That’s because the policy wasn’t in force for that time anymore. We wouldn’t expect a customer to pay for a policy they didn’t have.

If we think the customer deliberately gave you incorrect information, we might say it's reasonable for you to void the policy and keep all the premiums. This type of misrepresentation goes beyond carelessness and indicates the customer was trying to obtain a benefit they weren't entitled to.

uk1

FlameCloud said:

I'd be interest in the though process re the legislation side.
S5 of the CIDRA says a misrepresentation is either deliberate/reckless or careless. Its the first two if the consumer knew, or did not care that it was untrue or misleading. It is careless if it was none of these things (S5.1-5.3)

Schedule 1, Part 1, Careless Misreps, Claims, Point 5 says:

If the insurer would not have entered into the consumer insurance contract on any terms, the insurer may avoid the contract and refuse all claims, but must return the premiums paid.

The FOS ruling you mention re the car mods is odd, and there is presumably a back story to it. They obviously do not have to directly apply the Law, but even the case studies on the page you link to suggests that they follow it generally, and the case studies linked to suggest they follow this-

Voiding the policy

If you wouldn't have offered the policy at all, you’re entitled to void the policy. This means the policy will be cancelled from the date the misrepresentation occurred – either the start of the policy or a later renewal. If there’s an ongoing claim, you won’t have to pay it because the voidance will mean that there was no policy in force when the damage occurred.

In these cases, you’ll need to refund the customer’s premiums back to the date of cancellation. That’s because the policy wasn’t in force for that time anymore. We wouldn’t expect a customer to pay for a policy they didn’t have.

If we think the customer deliberately gave you incorrect information, we might say it's reasonable for you to void the policy and keep all the premiums. This type of misrepresentation goes beyond carelessness and indicates the customer was trying to obtain a benefit they weren't entitled to.

The opinion I offered earlier was that the insurer was compelled to consider the claim unless the new non-disclosed facts would have led to the insurer declining cover originally.  I think the case studies and your post support that opinion. 

In your earlier post you seemed to disagree.  I think you were saying that there were no circumstances where an insurer could void “because they were big enough”.

I'm genuinely unclear whether you’ve changed your mind and now agree - but if not why? 

Aretnap

FlameCloud said:

S5 of the CIDRA says a misrepresentation is either deliberate/reckless or careless. Its the first two if the consumer knew, or did not care that it was untrue or misleading. It is careless if it was none of these things (S5.1-5.3)

It says that a qualifying misrepresentation is either deliberate/reckless or careless. A qualifying misrepresentation is defined in S4 as one where the customer did not take reasonable care. So if the customer did take reasonable care S5 (and most of the rest of the Act) doesn't apply. The misrepresentation is neither careless nor deliberate/reckless - and neither the remedies for careless nor deliberate/reckless misrepresentations apply.

Aretnap

uk1 said:

Hi,

Take a look at case studies 1 and 2.

https://www.financial-ombudsman.org.uk/data-insight/insight/insight-in-depth-underinsurance-misrepresentation-non-disclosure

I don't think either of those is relevant. In study 1 the Ombudsman explicitly says that the customer failed to take sufficient care. "But in our view, she’d acted carelessly when answering the insurer’s questions. Rather than taking the time to think about what the jewellery was worth, or having the jewellery valued, she’d instead made an assumption that turned out to be wrong." And (2) involves a couple who knowingly withheld information thinking (wrongly) that it wouldn't affect the rest of the policy - again very different from failing to decalre something that they couldn't reasonably have known about.

uk1

Aretnap said:

uk1 said:

Hi,

Take a look at case studies 1 and 2.

https://www.financial-ombudsman.org.uk/data-insight/insight/insight-in-depth-underinsurance-misrepresentation-non-disclosure

I don't think either of those is relevant. In study 1 the Ombudsman explicitly says that the customer failed to take sufficient care. "But in our view, she’d acted carelessly when answering the insurer’s questions. Rather than taking the time to think about what the jewellery was worth, or having the jewellery valued, she’d instead made an assumption that turned out to be wrong." And (2) involves a couple who knowingly withheld information thinking (wrongly) that it wouldn't affect the rest of the policy - again very different from failing to decalre something that they couldn't reasonably have known about.

Correct.  But I posted it in response to the post that there were no circumstances in which insurance could be voided if the proposal contained ommissions.  There are.  

 I didn’t post it in the context of the OP’s partner’s  claim. 

Aretnap

uk1 said:

Correct.  But I posted it in response to the post that there were no circumstances in which insurance could be voided if the proposal contained ommissions.  There are. 

Obviously there are circumstances in which insurance can be voided if the proposal contained omissions. I don't think anyone in this thread has claimed otherwise. I certainly haven't.

My point is that the policy can only be voided if the omission was the result of a lack of reasonable care on the part of the policyholder - the clue is in the phrase "careless misrepresentation". There are some other conditions which have to be met as well, but the lack of reasonable care is a sine qua non.

In other words, I think that you were right the first time round.

Aretnap

FlameCloud said:

Voiding the policy

If you wouldn't have offered the policy at all, you’re entitled to void the policy. This means the policy will be cancelled from the date the misrepresentation occurred – either the start of the policy or a later renewal. If there’s an ongoing claim, you won’t have to pay it because the voidance will mean that there was no policy in force when the damage occurred.

In these cases, you’ll need to refund the customer’s premiums back to the date of cancellation. That’s because the policy wasn’t in force for that time anymore. We wouldn’t expect a customer to pay for a policy they didn’t have.

If we think the customer deliberately gave you incorrect information, we might say it's reasonable for you to void the policy and keep all the premiums. This type of misrepresentation goes beyond carelessness and indicates the customer was trying to obtain a benefit they weren't entitled to.

Coming back to this (sorry, didn't have tome to write a full reply earlier)

The section you quote comes under the heading When a customer doesn’t take reasonable care. So obviously it doesn't apply when the customer did take reasonable care.

Before that section, there are sections dealing with whether or not there was a misrepresentation, and whether or not the misrepresentation was the result of a lack of care. For example they say:

Sometimes it’s acceptable that customers haven’t told insurers certain information. This could be when the information:

• is something the customer doesn’t know or couldn’t reasonably have been expected to know

and later

If the customer didn’t take reasonable care and misrepresented some information that affected the policy, you’ll then decide whether the misrepresentation was careless or deliberate.

If the customer did take reasonable care, then even if there was a misrepresentation, you can’t take any action against the customer.

So in other words the ombudsman's guidance, read as a whole, follows CIDRA. The first question to answer if whether the customer took reasonable care to answer the questions accurately. If they did, the it's not the fault of the customer, and the insurer just has to take it on the chin and honour the policy. If they didn't, it's then and only then that the question of whether it should be classed as a careless or a reckless/deliberate misrepresentation comes into play.

This isn't a particularly new thing. The Ombudsman's broad approach has been the same since well before CIDRA came into play; for example this newsletter from 2001 (Page 17) deals with innocent non-disclosure and notes that:
The ABI Statement of General Insurance Practice requires firms not to repudiate a claim on the grounds of the customer’s failure to disclose a material fact, if that fact was one that a customer could not reasonably be expected to disclose... (and) not to ask questions requiring knowledge which the signatory could not reasonably be expected to possess.

So the concept that an insurer can't cancel a policy due to the customer's failure to disclose things that he couldn't realistically have known is not a new one.