I recently read a consumer complaint in one of the national newspapers that highlighted an issue that continues to dog insurers and their customers.
The consumer in question had their claim for a burglary declined by their insurer. Their garage had been broken into and goods worth several hundreds of pounds were stolen, however the insurer felt that their customer had not exercised reasonable care in securing the garage. Its wooden door on the side was rotten and could not be locked however the thief had to climb over a garden wall which had barbed wire across it to access the garage and its contents, and then leave via a neighbour’s gate which was bolted from the inside. Both the customer and insurer argued their case with the ombudsman, who eventually came down on the side of the customer.
All home insurance policies contain a clause which states that the customer must take all reasonable steps to prevent loss or damage to the property insured by the policy. Failure to do so gives the insurer the right to decline a claim – or relevant part of the claim.
It’s not unreasonable for insurers to include this clause.
If customers took no action to prevent loss or damage or to mitigate the amount of loss or damage, then there is the risk that many would pay little attention to the maintenance of their home leaving insurers to pick up the bill. It doesn’t take an insurance genius to imagine the impact this would have on premiums.
In reality, insurers can exclude few claims under this clause but the key word ‘reasonable’ has given rise to complaints. It has been considered by the courts on a number of occasions and insurers now have well defined guidelines within which to make their decisions.
However the case I outlined earlier wasn’t the first that I’ve read about and I doubt it will be the last. Sadly many people think because they are insured, they don’t have to worry about taking care of what is actually covered by their policy. And of course reasonable care doesn’t just apply to how the customer looks after the property insured, but also to the application itself.
This is where it is really important for brokers to help ensure that it is completed correctly. While the Consumer Insurance Act that came into force in April 2013 did modify the consumer’s duty of utmost good faith by removing the obligation to disclose all material facts, they must still respond honestly and with reasonable care to the questions asked by the insurer. If it comes to light further down the line that the customer has omitted relevant information such as a previous claim or incorrect details about the structure of the property, this could render the policy invalid.
Reasonable care is really all about commonsense. Do make sure your clients realise that they do have a duty to take reasonable care rather than them working it out when it might just be too late.
Phil Lewis is head of HR and compliance at Source Insurance
