Recent rulings by the National Financial Ombud (NFO) highlight the importance of reading and understanding the insurance policy and exclusion clauses – for both the insurer and the insured.
The non-life insurance division of the NFO is sometimes required to make rulings on complaints brought by insured consumers who have had claims rejected by their insurers.
The Ombud says although no two scenarios are exactly the same, there are sufficient similarities for universally applicable guidelines to be drawn up. It shared some of these rulings, and the lessons learned, on its website.
“Following these guidelines can make for frictionless claims, a far greater likelihood of a claim being paid out, and much less chance of the claim culminating in a complaint to the NFO,” the Ombud says.
Know your policy (exclusions of cover)
Exclusions in insurance policies refer to specific behaviours or circumstances that, if present during an incident leading to a claim, give the insurer grounds to reject the claim. A recent case involving a motorist who exceeded the speed limit illustrates this principle clearly.
The motorist was found to be driving significantly faster than the prescribed speed limit at the time of an accident. A clause in the insurance policy allowed the insurer to deny a claim if the driver was travelling above a certain threshold over the limit. The insurer relied on this clause, supported by data from a tracker fitted to the vehicle, to justify rejecting the claim.
In response, the claimant argued they had accelerated to avoid an imminent collision. However, after reviewing the evidence – including the road layout and speed data recorded before the accident – it became evident that the driver’s version of events did not hold up.
This case highlights two important lessons.
First, the importance of reading policy documents and understanding how any specified exclusions can impact the validity of a claim.
Second, it’s essential that insurance clients tell the truth when making a claim – being found to have done otherwise will undermine any claim and may lead to the insurer relying on misrepresentation as another reason to decline a claim.
If in doubt, ask – ambiguous policy terms
As with many legal documents, the meaning of words and phrases in insurance policies can often be unclear on first reading. This perceived ambiguity can lead to misunderstandings, frequently resulting in complaints being filed with the NFO.
In a recent case, the validity of a rejected claim under a household contents policy hinged not on the material facts of the incident, which were undisputed, but on the interpretation of certain terms used in the policy.
The insured submitted a claim for theft, which occurred while they were temporarily away from their home. However, there was no evidence of forced entry or exit, and the insurer declined to pay the claim, citing the policy’s requirement for such evidence in cases where the premises were unoccupied.
The key issue became the definition of “unoccupied” as outlined in the policy. Although it was agreed that the residents were not at home during the burglary, their absence was brief. Despite this, the ruling determined that according to the policy’s wording and its intended meaning, the premises were indeed considered unoccupied. Since no signs of forcible entry or exit were present, the insurer was within its rights to reject the claim.
The lesson from this ruling: If you are unsure about the meaning of any of the words or phrases used in your insurance policy – particularly in the exclusion clauses – ask your insurer or broker to explain them.
Be sure you understand who is insured
In a recent case involving a claim for damage to a motor vehicle after a crash, it was found that the driver at the time of the accident was not the policyholder but one of their employees, who had been authorised to operate the vehicle. It was further established that the employee had been speeding at the time of the incident, exceeding the legal limit.
According to the policy’s exclusion clauses, this breach of the speed limit invalidated any potential claim. However, the policyholder contended that since they were not personally driving the vehicle, the exclusion clause should not apply, and the insurer should honour the claim.
The non-life insurance division of the NFO ruled otherwise. It found that the policy terms applied equally to the employee driving the vehicle as they did to the policyholder. In this context, the employee was effectively considered an “insured person” under the policy, meaning that the exclusion clause still held.
The lesson from this ruling: It’s vital to understand all aspects of your insurance policy, and in particular, to whom each exclusion clause applies.
What really matters – the importance of materiality
A claim following a fatal road accident was rejected by the insurer, citing excessive speed and other reasons. However, a ruling by the NFO’s non-life insurance division determined that some of the insurer’s justifications were not applicable.
Although exclusion clauses can serve as valid grounds for rejecting claims, the ruling emphasised the importance of materiality. For an exclusion clause to be enforced, the facts used to trigger it must be directly relevant to the claim. Simply proving that the claimant exceeded the speed limit, for instance, may not be sufficient to invoke a rejection clause if the breach is not materially linked to the cause or severity of the incident.
The lesson from this ruling: The mere existence of an exclusion clause does not mean it always applies. Rather, the facts of the case must justify the triggering of the clause.
Contract terms must be clear and unequivocal
In a recent case involving the theft of a customer’s vehicle from a premises, carried out under false pretences, the insurer attempted to reject the claim by invoking the exclusion clauses in the contract. However, the non-life insurance division ruled that this rejection was unjustified.
The insurer’s reliance on certain exclusion clauses was complicated by ambiguities in their wording. In contrast, the language outlining the cover in the policy was clear and unambiguous. The ruling concluded that the clarity of the coverage terms took precedence over the disputed exclusions, leading to a decision in favour of the insured, affirming their right to cover for the loss.
The lesson from this ruling: Insurance policies – like all contracts – must be written in clear and unequivocal terms for the benefit of both the insured and the insurer. This will ensure that both parties know exactly where they stand in the event that a claim is made, and there is far less likelihood of a complaint arising.
