Insurance Claim Refused: How to Complain and Escalate

When you make a claim, an insurer may find something which it thinks suggests you misrepresented or did not disclose information when you took out the policy. For a policy an individual takes out wholly or mainly for purposes unrelated to their trade, business or profession, the Consumer Insurance (Disclosure and Representations) Act 2012 applies to contracts entered into and variations agreed after it came into force on 6 April 2013. Under the Act you have a duty to take reasonable care not to make a misrepresentation to the insurer, and that duty replaces any duty relating to disclosure which existed before the Act applied.

An insurer has a remedy for a misrepresentation only if you made it in breach of that duty and the insurer shows that without it, it would not have entered into the contract at all, or would have done so only on different terms. The only remedies available are set out in Schedule 1 to the Act.

Whether you took reasonable care depends on all the relevant circumstances, which may include how clear and how specific the insurer's questions were. The standard of care is that of a reasonable consumer, and a misrepresentation made dishonestly is always taken as showing lack of reasonable care.

A misrepresentation is deliberate or reckless if you knew it was untrue or misleading, or did not care whether it was, and you knew the matter was relevant to the insurer, or did not care whether it was. If it is not deliberate or reckless it is careless, and it is for the insurer to show that it was deliberate or reckless.

The remedies for a careless misrepresentation are based on what the insurer would have done if you had taken reasonable care, and the higher premium remedy applies in addition to the different terms remedy. In the Act's formula the insurer need pay only X% of the claim, where X is the premium actually charged divided by the higher premium, multiplied by 100.

If you complain to the Financial Ombudsman Service about a misrepresentation, it considers the insurer's obligations under the 2012 Act and looks at whether:

• the questions you were asked were clear and specific
• you took reasonable care to answer the questions correctly
• the information you gave was incorrect or incomplete
• the insurer would have done anything differently if it had been given the correct information
• the insurer has been fair in the way it handled the misrepresentation

If the insurer thinks the misrepresentation is deliberate or reckless, the Ombudsman needs it to show why, and if it is not satisfied with the insurer's reasons it is likely to say the misrepresentation was careless. The Ombudsman says it is sometimes acceptable that customers have not told insurers certain information, for example where the information:

• is something you do not know or could not reasonably have been expected to know
• is something the insurer should reasonably be expected to know
• is not relevant because the insurer waived its right to know it
• reduces the risk to be covered by the policy
• is covered under the Rehabilitation of Offenders Act 1974

If the Ombudsman decides that you have not made a misrepresentation, or that the insurer unfairly avoided or changed the terms of a policy, it asks the insurer to put things right, for example by reinstating an avoided or cancelled policy, removing any terms applied retrospectively, or settling a claim in full rather than proportionally.

Business insurance is different. Part 1 of the Insurance Act 2015 applies to non-consumer insurance contracts only, and before the contract is entered into the insured must make to the insurer a fair presentation of the risk.

Under the FCA's rules for insurers (ICOBS 8.1.1R), an insurer must:

• handle claims promptly and fairly
• provide reasonable guidance to help a policyholder make a claim and appropriate information on its progress
• not unreasonably reject a claim (including by terminating or avoiding a policy)
• settle claims promptly once settlement terms are agreed

In the FCA's view, rejecting a consumer's claim would be unreasonable in cases that include, but are not limited to, rejection:

• for misrepresentation, unless it is a qualifying misrepresentation
• where the claim is subject to the Insurance Act 2015, for breach of warranty or term, or for fraud, unless the insurer is able to rely on the relevant provisions of that Act
• where the policy is drafted or operated in a way that does not allow the insurer to reject

For contracts entered into or variations agreed on or after 1 August 2017, a rejection of a consumer policyholder's claim for breach of a condition or warranty (that is not subject to and within section 10 or 11 of the Insurance Act 2015) is unreasonable unless the circumstances of the claim are connected to the breach. The Financial Ombudsman Service gets complaints from customers who say their insurance company will not accept their claim because it is linked to a pre-existing medical condition. If the insurer did not ask anything about your health and there was no medical screening, the Ombudsman considers whether it was fair for the insurer to use an exclusion in your policy.

• The insurer must send a final response, or explain why it cannot yet, within 8 weeks of receiving your complaint (DISP 1.6.2R)
• The final response includes the outcome of your complaint and how to take it further. Read it carefully and keep it, because the Financial Ombudsman Service will ask to see it
• You can ask the Financial Ombudsman Service to investigate if you have had a final response and are not happy with the outcome, or the insurer has had the time it needs and you have not had a reply
• You then have 6 months from the date of the final response to refer the complaint
• The Ombudsman generally cannot consider a complaint referred more than 6 years after the event or, if later, 3 years from the date you became aware (or ought reasonably to have become aware) that you had cause for complaint
• The Ombudsman is free to use, and a decision you accept is binding on you and the insurer

Let the insurer know as soon as you can if you are in a vulnerable position, for example if you are severely ill, in financial difficulty or need help urgently, because it may be able to look at your complaint more quickly. The Ombudsman decides using evidence from you, the insurer and any relevant third parties, and considers the relevant law and regulations, the regulator's rules, guidance and standards, and industry codes and good practice. A complaint is decided by what is fair and reasonable in all the circumstances of the case.

If the Ombudsman route does not apply or does not resolve it, see our small claims guide. If you paid the premium by card and the policy itself was mis-sold, chargeback is a different route back to your money. Critical illness cover explains why policy definitions matter when a claim is made, and the insurance section lists every insurance guide.