Insurance Contract Law Issues Paper 2 Warranties - Law Commission

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APPENDIX B: CONSUMER DISPUTES ABOUT POLICY TERMS BROUGHT TO FOS B.1 We wished to gain a better understanding of the type of disputes over policy terms brought to Financial Ombudsman Service (FOS), and how ombudsmen approached such cases. We therefore asked FOS if we could read through 50 final decisions classified as policy term disputes, brought by consumers. FOS very kindly provided us with copies of final decisions reached between and January 2005 and August 2006. B.2 A few cases within the policy term category were mainly about other issues. We excluded one case because it was about mis-selling, and another because it was about a non-disclosure. We were able to replace these with other cases, and ended up with 50 consumer cases concerning a term in the policy. Given that disputes over policy terms can cover a wide variety of subjects, 50 is not a large number. The discussion below provides a feel for the sort of issues that cause problems and how ombudsmen approach them, rather than a quantitative analysis. B.3 Final ombudsman decisions are not typical of all cases. The FOS Annual Review for 2004/2005 shows that most cases do not reach an ombudsman: over half (58%) were resolved through mediation, and more than a third (38%) were resolved after an adjudicator had given a view on the merits. Only 7% were resolved by a final ombudsman decision. However, we thought that ombudsman decisions would give us the best understanding of the approach that the FOS takes to policy terms. B.4 We are very grateful to FOS for allowing us access to these cases. We undertook to preserve the anonymity of both complainants and insurers and we have been careful to remove any details that could allow the parties to be identified. In the examples that follow, we refer to complainants by changed initials and to cases by number rather than name. These numbers have been allocated by us for the purposes of this study, and bear no relation to FOS records. TYPES OF POLICY B.5 The 50 cases covered many different types of insurance, though some types were more likely than others to lead to disputes about terms. B.6 Disputes about travel insurance were particularly prevalent, and we discuss them in more detail below. Legal expenses insurance also appeared to be overrepresented, compared with its importance in the market, and we provide a brief description of the issues it raises. 106
Table 1: Type of policy Travel 14 28 Building/contents 8 16 Income/loan protection 7 14 Legal expenses 6 12 Health 4 8 Critical Illness 3 6 Caravan 3 6 Other 5 10 Total 50 100 B.7 There were also particular terms that appeared to cause problems. Five cases considered the definition of total disablement, an issue that can arise in income protection, critical illness or health cover. <strong>Issues</strong> about security requirements arose in five cases (including the three caravan cases within the sample). Two cases involved “changes in risk clauses” which attempt to impose a continuing duty on policyholders to disclose a change in circumstances. Again, we discuss these in more detail below. B.8 The “other” category included one of each of the following: motor, pet, breakdown assistance, mobile phones, and a car data check. Disputes can arise about a wide variety of policy terms. The sample included a dispute about whether pet insurance covered hydrotherapy for a pet dog, whether breakdown assistance covered driving into a ditch, and whether insurance on a car data check covered the risk that the vehicle was cloned. B.9 Given the prevalence of motor insurance, we were slightly surprised that our sample included only one such case. It may be that motor insurance includes more standard terms, and that these terms are better known and understood among consumers. TRAVEL INSURANCE B.10 Travel policies appear to cause particular problems: they are usually low cost products, sold by non-specialists, with minimum formality. Consumers are unlikely to invest much time or effort into understanding the policy terms, though some claims may be substantial. The FOS appeared willing to use its fair and reasonable discretion to require insurers to pay claims, even if the issue was excluded by the small print of the policy. Overall, nine of the 14 complaints about travel insurance were upheld. The figures are too small to be statistically significant, but they suggest a higher success rate: two thirds of travel policyholders won, compared with around half overall. 107 No %
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Insurance Contract Law Issues Paper
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SPECIFIC UNDERTAKINGS AS TO PAST OR
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Reinsurance 15. Are there any reaso
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Basis of the contract clauses 39 Sp
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PART 1: INTRODUCTION BACKGROUND 1.1
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PART 2: BACKGROUND WHAT IS A WARRAN
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Held covered in case of any breach
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For example, in Farr v Motor Trader
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We recognise that a consequence of
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THE RECOMMENDATIONS 3.3 The 1980 re
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The test in the final report 3.12 F
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3.21 A more recent example is Seddo
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PART 4: ARE WARRANTIES STILL A PROB
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(4) The wording of the warranty doe
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4.12 The “innominate term” clas
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4.23 The 1977 Statement of Long-Ter
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4.34 The Long-Term Statement, howev
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4.42 In Director General of Fair Tr
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Does an exception have to be in pla
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4.60 It is not necessarily sufficie
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4.69 It might be argued that most w
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4.78 However, issues of causal conn
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4.86 Case 14 concerned a critical i
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5.5 In 1980 the Law Commission desc
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5.15 The effect of the Regulations
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Business insurance 5.25 The problem
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PART 6: WARRANTIES IN OTHER JURISDI
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6.10 In a 1982 case, the judge expl
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(b) In the view of the court or arb
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(4) Where the insured proves that s
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6.33 An added twist to these diffic
Page 63 and 64: 6.44 The problems appear where the
Page 65 and 66: 6.53 Soyer argues that on the facts
Page 67 and 68: 6.64 An example will illustrate the
Page 69 and 70: PART 7: PROVISIONAL PROPOSALS 7.1 T
Page 71 and 72: All insurance 7.12 For both consume
Page 73 and 74: 7.20 In the seminar we were asked w
Page 75 and 76: 7.28 The last option is the most ra
Page 77 and 78: 7.37 It would be consistent with th
Page 79 and 80: 7.46 There are two reasons why an i
Page 81 and 82: Other types of clause dealing with
Page 83 and 84: 7.68 We tentatively conclude that t
Page 85 and 86: Our provisional view 7.75 In our vi
Page 87 and 88: 7.85 We think it would be unduly fo
Page 89 and 90: 7.97 Should the causal connection t
Page 91 and 92: 7.105 It has been put to us that a
Page 93 and 94: Legality 7.116 The warranty of lega
Page 95 and 96: 7.127 In 1980 the Law Commission re
Page 97 and 98: Continued liability for premiums FU
Page 99 and 100: 7.148 The question is whether this
Page 101 and 102: 7.157 Often both forms of waiver in
Page 103 and 104: PART 8: AN UNFAIR TERMS APPROACH TO
Page 105 and 106: 8.10 These provisions require the c
Page 107 and 108: (3) In examining whether a term was
Page 109 and 110: APPENDIX A: THE IMPLIED WARRANTIES
Page 111 and 112: A.11 There are some reasons to trea
Page 113: To nullify a bargain in such circum
Page 117 and 118: B.16 Here a breach of the term does
Page 119 and 120: (4) In Case 20, the policy excluded
Page 121 and 122: significant definitions, terms and
Page 123 and 124: B.46 Although ombudsmen are unsympa
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