Page last updated at 00:01 GMT, Saturday, 12 December 2009

'Unfair burden' of insurance law

By Maryam Moshiri
Business reporter, BBC News

Inga McVicar
Inga McVicar found that her insurance claim was refused

Time could be called on a 103-year-old insurance law which campaigners say has led to thousands of insurance claims being unfairly rejected each year.

Claims made on all types of insurance have been turned down by some insurance firms under the law, which puts a duty of disclosure on the policyholder.

Consumers are expected to tell an insurer about issues which might subsequently be important.

The Law Commission said the rules put too much pressure on the consumer.

Current rules

Consumers are not only expected to tell the insurer things they have been asked about, such as known medical conditions, but also things they have not been asked about and which could later turn out to be important.

While I was trying to deal with my illness I had to return to work to have some form of income
Inga McVicar

"The consumer is obliged to tell the insurer everything the insurer may want to know when it takes that risk. Well, obviously that places the consumer in the same position as the insurer," said Law Commissioner David Hertzell.

"That is a huge burden to ask the insurer to undertake, they simply do not know what factors the insurer will take into account when writing that risk, so it is easy for them to make a mistake and have their policy invalidated."

Inga McVicar was diagnosed with ovarian cancer in 2007.

She believed she would be covered under her critical illness insurance, but when she put in a claim, the insurance company refused to pay out.

"When the claim was refused it meant that I had to return to work, during my chemotherapy," she said.

"So while I was trying to deal with my illness, and at a point when I did not know whether the treatment was going to be successful or not, I had to return to work to have some form of income.

"The insurance policy I had banked on and really needed to be there was not."


The problem lay with her original application form, which she had when she had just quit smoking. The form asked whether she had smoked in the previous 12 months, which she had.

But the application was filled in by a broker who made a mistake and ticked the "no" box. The insurance company accused her of deliberately misleading them, but she said it was a genuine mistake.

"I feel that what is happening is the insurance companies are applying the law to the absolute letter, so if a mistake is made on the application form, in a lot of cases, they will just refuse that policy. The law gives you no real protection for human error."

She went to the Financial Ombudsman, who found in her favour and ordered the insurance company to pay her £46,000.

The Financial Ombudsman Service said it received about 1,000 complaints on this issue a year.

The Association of British Insurers (ABI) has now given its support to a draft bill for England, Wales and Scotland which is due to be presented to Parliament by the Law Commission next week.

"We think that this legislation can bring all the good practice together and put it in a clear and non-confusing format," said Nick Starling, from the ABI.

"Insurers pay out huge amounts of money. They pay £57m everyday in general insurance claims. Clearly with all these claims things are sometimes going to go wrong. Everyone regrets that, no-one wants that to happen."

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