Misrepresentation, Non-Disclosure and Breach ... - Law Commission

7.31 Case 14 concerned a critical illness policy offering a defined sum in the event of a
heart attack. A policy term defined “heart attack” as “the death of a proportion of
heart muscle as a result of inadequate blood supply”, as evidenced by three
symptoms: chest pain; “electrocardiograph changes”; and raised cardiac
enzymes. The complainant was diagnosed and treated for a heart attack
involving pain and elevated enzymes, but which did not show changes on an
ECG. The insurers refused the claim on the grounds that one of the essential
elements of the definition was not met.
7.32 The ombudsman pointed out that neither the key features document nor the
headline illness highlighted that a heart attack was only covered if it was of a
certain severity or if it involved satisfying a three-limb test.
When a definition significantly restricts the meaning of the headline
illness in a way that is inconsistent with either a policyholder’s or a
doctor’s reasonable understanding of when a critical illness or event
has occurred, then I consider it would be unfair of a firm to rely on a
narrow interpretation of a definition to defeat an otherwise valid claim.
In my judgement, the complainant’s claim should be met because it
falls within the spirit of what the policy was designed to cover and
how it was sold.
7.33 Thus the FOS is prepared to strike down a narrow definition of the risk contained
within the policy small print if this was not in accordance with reasonable
expectations and was not made clear to the consumer.
SMALL BUSINESS CASES
7.34 We looked at 18 complaints brought by small businesses concerning the use
made of policy terms. From this, it appears that warranties are much more
commonly used in business insurance. The sample included cases brought by
(1) a Chinese restaurant, about a warranty that the wok should never be left
unattended (SB case 4);
(2) a pub, about warranties over how the deep fat frying range should be
cleaned (SB case 14); and
(3) a self-employed builder about an “application of heat warranty”, setting
out precautions the insured was required to take when using a blow torch
(SB case 10).
7.35 We did not find any cases in which an insurer had attempted to refuse a claim
solely because of a breach of warranty that had no connection with the claim.
However, insurers might raise secondary issues about such breaches. In Case
10, the insurer drew attention to a breach that did not cause the loss as a
supporting argument when it had decided to refuse a claim for other reasons.
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