Compensation Success for Life &
Critical Illness Insurance Policy Holder

The Financial Ombudsman Service (FOS) operates a two-stage review process. Initially, an Investigator looks at the case and makes a decision. If both parties agree with their findings, that decision is final. If one or both parties disagree, the case can be escalated to an Ombudsman, who will independently review the case and make a decision. Their decision is legal and binding.

FOS reviewed the advice IMC had given Mr T, and both the insurance broker and Mr T provided feedback. Of note were the following:

• FOS upheld Mr T’s complaint.
• IMC offered to pay Mr T £35,000 to settle the complaint.
• IMC argued that its role was to provide advice, not make decisions for Mr T, and that the advice was suitable, based on the information known at the time.
• IMC discussed the critical illness cover exclusion with Mr T and suggested he discuss his medical condition directly with his GP.
• Mr T’s medical condition progressed more quickly than expected, and it was believed he would have claimed on his insurance much sooner than previously suggested.
• It was proposed that IMC calculate the current critical illness benefit on the 2010 policy, had it still been in force, and set aside that amount, so it was available should Mr T make a successful claim for something covered by the 2010 policy that was not included in the 2014 policy.
• IMC disagreed with the idea of setting aside a pot of money for a potential claim against the 2010 policy, due to the administrative and cost burden it would add. IMC preferred to settle the claim with a single lump sum and offered Mr T an increased amount of £50,000.
• Mr T refused the £50,000 offer and asked the Ombudsman to decide what was ‘fair and reasonable’ in the case.

The Ombudsman reiterated that Mr T’s complaint should be upheld. They said that the ideal outcome for Mr T was to end up with a policy in 2014, without exclusions, that covered him for the full term of his mortgage.

Given the change in Mr T’s health, the Ombudsman concluded that Mr T would have likely chosen to keep his 2010 policy and arrange a top-up for the increased amount of his new mortgage, as his pressing need was to have cover for a potentially serious kidney problem. Further, the Ombudsman didn’t think IMC discussed the possibility of Mr T keeping his original policy.

The Ombudsman concluded:

“On balance, I still believe the best way to resolve this complaint is for IMC to pay an amount equal to the current sum assured on Mr T’s 2010 policy (if it was still in force) into an escrow account or similar custody arrangement. This would mean an independent third party held the money and paid Mr T at the correct point in the future if certain conditions are met.”

The amount set aside would decrease over time as the term assured decreased, with regular payments made back to IMC accordingly, and any remaining funds at the end of the term would also be returned to IMC. IMC would be responsible for all the costs associated with setting up and administering the arrangement.

Had Mr T kept his original policy and taken a new top-up policy for the additional mortgage cover, he would have been paying £60.56 per month. That means he has been overpaying by £5.08 per month. This overpayment should be refunded, plus interest at 8%.

Mr T was also awarded £750 to compensate him for “the significant and unnecessary trouble and upset he’s been caused at an already difficult time”.

Life assurance and critical illness cover are part of a group of insurance policies known as pure protection insurance. It is designed to help people when their circumstances change and they are faced with loss of employment, serious illness or death.

Pure protection insurance includes whole of life (including over-50’s plans), term assurance, critical illness cover and income protection. Financial watchdog, the Financial Conduct Authority (FCA) is currently reviewing this sector, with a particular focus on how policies are sold and whether they offer fair value for customers.

Sarah Spruce, Legal Director at TLW Solicitors, says:

“No one wants to have to claim on critical illness insurance, but Mr T’s case highlights the importance of getting the right advice at challenging times in your life. Whilst historic, his case is as relevant now as it was when it was first decided. It is very interesting as it focuses on potential issues that may arise when cancelling a longstanding policy and replacing it with a new one, something I’m sure many people consider when marrying, divorcing or remortgaging.

Mr T’s adviser should have outlined the pros and cons of both policy options and advised on the best cover for his needs. We are aware of issues within the protection insurance industry, and the FCA has recently firmly committed to investigating the entire market, beginning with ‘reviewable’ life insurance policies and ‘loaded premiums’. My specialist claims team and I are eagerly awaiting the outcome of these investigations, ready to help innocent consumers who may have lost out financially.

If you believe that you or a loved one have been mis-sold a life or critical illness policy, please contact our team of specialists for a free, no-obligation review. We will be able to advise on next steps, including whether you may be eligible to make a ‘no-win, no-fee’ compensation claim.”