Insurance Contract Law Issues Paper 2 Warranties - Law Commission

B.32 When faced with disablement cases, the FOS tends to apply the policy term as it
stands. It can seem harsh to exclude a complainant from benefit because they
could in theory perform another job, even if they stand no realistic prospect of
obtaining such a job. However, ombudsmen accept that insurers are commercial
entities, and that they have taken on the risk of disablement, not unemployment.
As the ombudsman put it in Case 13,
An insurer applies different, more stringent criteria for benefit than the
state and the thresholds for benefit tend to be higher; after all,
insurers are commercial entities that do not have the same social
welfare responsibilities as the government.
B.33 In these cases, the complainants did not suggest that the policy had been missold,
or that the terms of the policy had been ambiguous. Within the industry,
there is a well-understood difference between “normal occupation” cover and
cover against disablement from any job for which the insured might be suited.
These cases, therefore, were not treated as ones in which the ombudsman
needed to scrutinise unusual or ambiguous terms.
SECURITY REQUIREMENTS
B.34 In five cases, the insurer refused to pay a theft claim because the policyholder
had not used the required security devices. This was a particular concern in
caravan policies, which often contain stringent requirements that the caravan is
stored in a secure place. There were three cases where a caravan had been
stolen and the insurer alleged a breach of security requirements.
B.35 However, the FOS is not sympathetic to security clauses buried in the small print.
In all five cases in the survey, the insurer was ordered to pay the claim.
Ombudsmen argued that the security requirement was not clearly worded, or was
not brought to the consumer’s attention, or was not causally connected to the
loss that occurred.
B.36 There were several cases in which the ombudsman stressed that if the consumer
was required to comply with specific requirements, this must be brought
specifically to the consumer’s attention:
(1) In Case 43, the policy required that “high value caravans” should have an
alarm. The ombudsman held that it was not made sufficiently clear to the
complainants that their £9,000 caravan would be classified as high value.
It was not enough to include the requirement in the policy document.
Instead, such an important term should be brought to the policyholder’s
attention before the contract was concluded.
(2) In Case 40, the caravan was placed at a caravan site all summer, where
the family visited it at weekends and for longer periods. The insurer
argued that it was in storage, and should be subject to storage security
requirements. The complainants argued it was in recreational use. The
ombudsman found that the firm had not done enough to explain the
security measures it required. The ombudsman stated that good
insurance practice requires that
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