What Happens When an Insurance Claim is Rejected?
The statistics are frightening. Every year thousands of insurance claims are rejected by insurance companies, and over time insurance companies have developed a reputation for finding more and more ways to not pay out on a claim.
Different Reasons Why Insurance Claims are RejectedWhenever you take out an insurance policy, you agree to the terms and conditions set out within the insurer’s key features document and policy schedule. Different types of insurance policy will have different conditions that they expect the policyholder to be able to meet.
'Utmost Good Faith'Any insurance policy is essentially a contract. It is an agreement based on the notion of ‘utmost good faith’. How does this work in practice? Before agreeing to the terms of the insurance policy, the customer has a duty to disclose whatever information the insurance company bases its policy – and also of course the cost of the policy – on when it is issued.
If the insurance company believes that the policyholder has failed to disclose information that could affect the claim, or would have affected the cost of the insurance, they will usually try to reject the claim.
Take car insurance as an example. Susan’s car was stolen in 2006, and she reported the theft first to the police and then to her insurance company. However, during the course of the insurance company following up on the claim, they discovered that Susan had four convictions for speeding stretching back over five years. Susan claimed that she had made an oversight in not including the speeding tickets on her application. The insurance company rejected her claim because the policy application form had specifically asked for details of previous convictions.
The speeding fines had nothing to do with Susan’s claim, but because the insurer was able to make the case that she had not acted in utmost good faith, Susan ended up having to pay for a replacement vehicle out of her own pocket. It was a very costly oversight on her part.
'Non-Disclosure'Another reason often given by insurance companies to reject a claim is that the policyholder has not made full disclosure. This is a similar concept to ‘utmost good faith’, because it demands the policyholder to provide enough information relating to a policy, and will refuse to pay out if the insurer believes the policyholder has failed to do so.
However, non-disclosure is used to reject claims where the claimant is believed to have gained a direct financial gain by not mentioning something that would have either made their premiums cheaper, or could potentially lead to a larger insurance payout. Because of this distinction, non-disclosure is most usually used within health and protection insurance disputes.
For example, there has been increasing concern about the number of critical illness insurance claims that have been rejected by insurers who have used non-disclosure as a reason not to honour the claim. It is believed that two out of every ten critical illness claims are rejected because the policyholder failed to mention something on their application form.
The Financial Ombudsman Service (the group you should complain to if any insurance claim has been rejected), has argued that the application forms these insurers expect their customers to complete are unnecessarily lengthy and have been designed to be confusing to complete accurately. Furthermore, it is often difficult for policyholders to record every single ailment and medical condition that they have experienced in the past five years. It’s no surprise that so many people get caught out by failing to meet the insurance company’s exacting standards of disclosure.
'Lack of Due Care'A large number of people who have tried to claim on insurance for a mobile phone have had their claim for a replacement rejected by this clause. Although mobile phone insurance is supposed to pay out if a phone is lost or stolen, insurance policies expect customers to take ‘due care’ with their phone. If the phone was left in a pocket, or left in a car, or in an unattended building, you may not be covered. Also, if you fail to claim within 48 hours (perhaps because you are still hopeful that a lost phone will be handed in), the insurer can reject your claim for being too slow to inform them.
When it comes to making an insurance claim, it helps to take the most cynical view. Always work on the assumption that you will have to prove your claim beyond any shadow of a doubt. If you make no progress with the insurer, contact the Financial Ombudsman Service, which will be happy to look at your claim from an independent perspective.