Recent NFO Rulings Highlight Important Obligations of Insurance Clients

The Non-life Insurance Division of the National Financial Ombud Scheme is sometimes required to make rulings on complaints brought by insured consumers who have had claims rejected by their insurers. While no two scenarios are exactly the same, enough similarities are found for certain universally applicable guidelines to be drawn up. 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.

Based on recent rulings, following the guidelines outlined below can be strongly recommended.

Know your policy (exclusions of cover) [M480.22]

Exclusions are specific behaviours or circumstances which, if found to exist during an incident from which a claim arises, entitle the insurer to reject that claim. One recent example concerns a motorist who was found to be driving faster than the prescribed speed limit at the time of the accident.

More importantly, the driver was found to be travelling sufficiently fast to trigger a clause in their insurance policy regarding driving at a speed more than a certain amount faster than the relevant speed limit. The insurer relied on this clause and the facts of the case (including speed data supplied by a tracker fitter to the claimant’s vehicle) in rejecting the claim.

The claimant in turn contended that they had only accelerated to such a speed to avoid an imminent collision. However, on consideration of the facts of the case (including the road layout at the accident location and speed data prior to the accident), it was clear that this version of events was not supported.

Two lessons emerge from this Ruling:

• The importance of reading policy documents and understanding how any specified exclusions can impact the validity of a claim.
• Secondly, 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 [T77.23] 

As is the case with many legal documents, the intended meaning and import of words and phrases may not be apparent on a first reading. Perceived ambiguity can lead to misunderstandings that, all too often, can result in complaints being made to the NFO.

In a case on which a ruling was recently made, the validity of the claim (which had been rejected by the insurer) under a household contents policy rested not on the material facts of the case (which were not in dispute), but on the definition of certain terms used in the policy.

The insured submitted a claim for theft, with the alleged crime taking place while they were temporarily absent from their home. There was no evidence of a forced entry or exit, and the insurer argued that they did not have to pay the claim, as the policy stated that in the case of unoccupied premises, such evidence must be present for the claim to be upheld.

Instead, the challenge was to determine the meaning of ‘unoccupied’ as it was used in the policy. There was no question that the residents were not at the property at the time of the burglary. However, they were only absent for a short period.

Ultimately, it was determined that, as per the policy wording and its intended meaning, the premises were unoccupied, and given that there was no sign of forcible entry or exit, the claim could be rejected by the insurer.

Lesson from this Ruling: If you are unsure about the meaning of any of the words or phrases used in your insurance policy – especially in the exclusion clauses – ask your insurer or broker to explain them.

Be sure you understand who is insured – [A191]  

In the case of a claim for damage to a motor vehicle resulting from a crash, it was found that the incident driver was not the policy holder but one of their employees, whom they had authorised to drive the vehicle. It was further found that the incident driver had exceeded the speed limit at the time of the accident.

As per the exclusion clauses in the policy, this fact (the speed) would make any claim invalid. However, the insured argued that as they were not themselves driving the vehicle, this exclusion did not apply, and the claim should be honoured.

The Ruling made by the Non-life Insurance Division of the NFO was based on a finding that the policy was equally binding on the incident driver as on the policy holder, and the incident driver was for all intents and purposes an insured in terms of the policy, and therefore the exclusion clause applied.

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 [C723]

A claim arising from a fatal road traffic accident was rejected by the insurer on grounds of excessive speed, as well as other reasons that the Ruling by the Non-life Insurance Division found not to be applicable.

While exclusion clauses can provide grounds for rejecting claims, there must also be materiality. The facts that the insurer relies on in triggering the exclusion clause must be material to the claim – that is, they must be relevant. Simply proving that, for example, the claimant exceeded the speed limit may not be sufficient grounds to justify invoking a rejection clause.

Lesson from this Ruling: The mere existence of an exclusion clause does not mean that it always applies. Rather, the facts of the case must justify the triggering of the clause.

Contract terms must be clear and unequivocal [M1243.23]

In a case involving the theft of a vehicle from a premises, with the theft being of a customer’s vehicle and the theft being achieved under false pretences, a Ruling was made that the insurer was not justified in rejecting the claim.

The insurer had sought to rely on exclusion clauses in the contract. However, there was some uncertainty as to the meaning of certain exclusion clauses. In contrast, the language regarding the cover was clear and unambiguous, so this was determined to override the supposed exclusions, and the insured was determined to have cover for the specific loss and circumstances that were the subject of the complaint.

Lessons 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.

Conclusion

The examples described in this press release highlight the importance of reading and understanding the insurance policy and exclusion clauses. This has benefits for both parties, and will lead to fairer and more equitable outcomes all round.