Friends Life in deed?

Insurer ‘Friends Life’ refused a cancer victim’s claim because of information missing from his application form 'unrelated' to his cancer. Is this fair? His claim would almost certainly have to be accepted under a new law coming into force next year.

From next March, consumers in England and Wales applying for insurance will no longer have a duty to volunteer all material facts.  Instead, they will only have to take ‘reasonable care’ in answering an insurer’s questions, and to ensure their answers are not misleading.

Under the new law, if consumers make an honest and reasonable mistake in their application form, the insurer will still have to pay out.  If the consumer leaves out information carelessly, the insurer may adjust the compensation payable, but only if the missing information relates to the event being claimed for, or if the information would have resulted in a higher premium.  

Only if the consumer leaves out key information deliberately or recklessly will the insurer be allowed to refuse the claim and cancel the policy under the new law. 

The new law will most greatly impact critical illness cover.  Until recently, one-in-five critical illness claims were refused, many on the grounds that a claimant had failed to disclose information, such as a previous minor ailment.  This was often used by insurers to ‘wriggle out’ of having to settle claims. 

The new law has been welcomed by the Association of British Insurers (ABI).  A spokesman told me  “it reflects best practice already operating in the industry.” Regarding critical illness cover, the new law also echoes the ABI's 'Statement of Best Practice', which the ABI said all the major insurers subscribe to.

Yet, just months before the new law comes into force, leading insurer Friends Life has refused to pay out on a critical illness and life cover claim because of information 'inadvertently' missing from the application form.   

Nic Hughes - died after cancer insurance claim refused.

A few weeks ago Nic Hughes, just 44, died of cancer.  He’d previously taken out the insurance with Friends Life, disclosing ulcerative colitis. On being diagnosed with terminal cancer just one year ago, he had expected a pay-out of £100,000 in support of his young family. 

Friends Life refused to settle, and instead cancelled the policy. They claimed Mr Hughes had failed to declare that he had previously experienced numbness (‘pins and needles’) and had been advised to reduce his alcohol intake.   Doctors for Mr Hughes have described the decision of Friends Life as 'cruel and distasteful', adding that the reason for cancelling the policy was ‘irrelevant’ to Mr Hughes cancer.

The ABI spokesman told me that he could not comment on the Friends Life case. However, he did confirm that under the new law, information inadvertently left out of an insurance application and which wasn't relevant to the illness being claimed for could not result in the claim being refused by the insurer.

• How the story was covered by Jill Insley in The Observer

There’s now a petition for Friends Life to pay out to Mr Hughes widow.  Already almost 50,000 people have signed, including TV personalities Stephen Fry and Miranda Hart.  The petition has received widespread social, and conventional, media attention.

Friends Life say that they would never have offered critical life insurance to Mr Hughes if the ‘missing information’ had been provided on the application form.  This is a moot point, and one that the Financial Ombudsman Service has been asked to investigate promptly.   Under the new Act of Parliament, called the Consumer Insurance (Disclosure and Representations) Act 2012 it seems unlikely that Friends Life would be able to refuse the claim.   That law, though, is not yet in force.

A Friends Life spokesman told ‘Mortgage Strategy’ that the case is a priority for senior management.  He added, 'It is clear in this case that medical symptoms were not disclosed in response to detailed questions on the application form which, had we been aware of them, would have meant we could not offer cover.'

Friends Life... in deed when in need?

Post Script 30 April 2013: It's been announced that the Financial Ombudsman Service has found against Friends Life and ruled that the insurer was wrong not to pay out on Nic Hughes 'critical illness' cover.  
Friends Life loses in critical illness battle - FT Adviser

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