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Insurance – policy cancelled or suspended? – failure to reinstate – failure to explain process
Ms H held a contents insurance policy with a bank. In July 2003 she called the bank to suspend the policy, as she could no longer afford to continue to pay the premiums. She told the bank that she intended to reinstate the policy in the future.
On 21 December 2004, Ms H telephoned the bank’s call centre and spoke to a customer services adviser. She explained that she wanted to have her policy reinstated with immediate effect, and they discussed the amount of cover she required. She was accidentally cut off when the customer adviser tried to verify her identity. Ms H immediately called back and spoke to another staff member who was unable to access the underwriting software. This second staff member offered to email the previous customer services adviser to get him to call Ms H back to complete the arrangements for her insurance cover. When Ms H heard nothing further she assumed that cover had been arranged, as she had already provided the bank with all the information necessary to arrange the insurance and had previously held an insurance policy with it.
About three weeks later, on 10 January 2005, Ms H’s home was burgled. When she realised that she had received no formal confirmation of her policy, she called the bank, only to discover that the policy had not been reinstated, and that she was uninsured. The bank then insured her with immediate effect, but refused to compensate her for the loss sustained in the burglary because, in its view, she had not been covered when the burglary took place. The bank offered an ex gratia payment representing a refund of one year’s premium, but Ms H was not satisfied and lodged a complaint with my office.
The bank said that Ms H’s original policy had been cancelled and explained that, once a policy has been cancelled, it cannot be reinstated, as a full assessment of risk must be completed. If a policy is accepted by the bank’s underwriter, the insured person will normally be formally advised of this within three to five days of the risk being accepted, together with full details of the policy and payment arrangements. The bank could find no evidence that it had offered to provide Ms H with contents insurance on 21 December 2004. However, the customer services adviser in the call centre who first spoke to Ms H was aware of what she wanted when her call was disconnected, but did not have her contact information, and had not started the insurance sales process. He was busy on the day in question and had a backlog of calls, so although he received the email, Ms H’s second call was not followed up.
I found that, while the bank made it clear to me that a policy may not be reinstated once it has been cancelled and that a full assessment of risk has to be undertaken before a new policy can be arranged, there was nothing to suggest that this process had ever been made equally clear to Ms H, who firmly believed that it was possible to reinstate the old policy without further ado. I concluded that the bank had been at fault in not making it clear that a new policy would have to be arranged and that this would necessarily involve a risk assessment. Also, the bank should have contacted Ms H to follow up on her second telephone call. However, I felt that Ms H had to share some responsibility for the fact that she remained uninsured from 21 December 2004 until 10 January 2005, during which time she suffered a loss through burglary. I felt that a careful person, such as Ms H appeared to be, should have sought confirmation from the bank that her policy had been reinstated.
I accordingly proposed that responsibility for the direct loss suffered by Ms H should be shared between her and the bank, with the bank assuming responsibility for 60% of the established loss, and the complainant 40%. In addition, in recognition of the stress and inconvenience suffered by Ms H when she discovered the bank had failed to arrange contents insurance for her, I proposed that the bank should pay her compensation in an amount of $500. The bank and Ms H both accepted the proposed recommendation, and the complaint was resolved on that basis.