Legal recourse for declining or terminating travel cover

Consumer insurance legislation

The Consumer Insurance (Representation and Disclosure) Act 2012 (CIDRA) came into force some time ago, on 6 April 2013. However, its reference in reported court proceedings is limited (potentially, as matters up to £350,000 can now be referred to the Financial Ombudsman Service (FOS) for review, which is a cheaper option).

CIDRA removed the duty on consumers to disclose any facts that a prudent underwriter would consider material, and replaced it with a duty to take reasonable care not to make a misrepresentation when entering into an insurance contract. CIDRA was introduced as a result of concerns that consumers were unaware of their representation and disclosure duties, and because it was believed that honest and reasonable failures to disclose information or unrelated and minor mistakes could result in unfair refusal of claims.

CIDRA only applies to information provided to insurers prior to inception of cover, but it can affect claims brought once cover is commenced. For example, if an insured has failed to provide a full or honest answer to a direct question when asked (pre-inception), such misrepresentation may be held to be deliberate or reckless, leading to declinature of any claim if an insurer can show that they would not have underwritten the policy (on any terms) if they had been provided with the full and honest information they requested – Jones v Zurich Insurance Plc [2021] EWHC 1320 (Comm).

Misrepresentation

According to CIDRA, there are two types of misrepresentation:

(i) deliberate or reckless misrepresentation (giving rise to the same remedies);

(ii) careless misrepresentation.

In order for such misrepresentation to give rise to declinature of a claim, it has to be a ‘qualified misrepresentation’. A qualified misrepresentation is a representation that the insurer can show is made, and if had not been made, said insurer would not have entered into the contract of insurance at all, or would have done so on different terms.

Case law has determined that where a specific question is asked of an insured, it is clearly of relevance to the insurers and the presumption is that a reasonable insured would know the provision of information in response to such a question is relevant to an insurer.

Accordingly, unless an insured has an explanation for answering specific questions incorrectly, or incompletely, the presumption will be that such omission or absence was deliberate or reckless, allowing avoidance of the policy with no return of premiums (CIDRA, Sch 1, Para 1, 2 (a) and (b)).

Misrepresentations, such as failure to declare previous claims for high value items or failure to declare pre-existing medical or health conditions, will rarely meet the high bar for fraud but would constitute a deliberate or reckless misrepresentation, allowing an insured to deny a claim and, possibly, terminate the policy (depending on the policy terms). 

In the case of careless misrepresentation, misrepresentations that are neither reckless nor deliberate, but are still deemed ‘qualifying misrepresentations’, insurers will need to consider the remedies based on how they would have acted if the consumer had complied with their duties of disclosure (CIDRA, Sch 1, Para 3-8).

Exaggerated claims

There are many instances where post-inception of cover, a claim is presented that is exaggerated. Such exaggeration of an otherwise genuine claim is not necessarily fraudulent. The courts have judged that a doubtful or exaggerated claim should not infer fraud (Orakpo v. Barclays Insurance Services [1995] LRLR 443). The likely criteria for showing fraud are:

(i) the exaggeration being more than trivial;

(ii) evidence of intention or recklessness in misleading an insurer;

(iii) the fraud being material to insurers.

Where an insured has a genuine claim but includes items, for example, that are not part of such genuine claim, an intention to fraudulently claim or mislead insurers will likely lead to a finding of fraud and the repercussions of the same under the contract.

Fraudulent devices

Case law on fraudulent devices has been considered in respect of commercial insurance, but the judgement and principles from such cases were held to extend to consumer policies. Fraudulent devices occur when there is a genuine claim and any fraud is unnecessary in advancing such genuine claim, i.e., the insured in pursuing a claim, in a fraudulent manner, would not obtain any more than he is genuinely entitled to. While there has been criticism of such judgement, the position remains ‘good law’ (Versloot Dredging v. HDI-Gerling (The DC Merwestone) [2016] Lloyd’s Rep IR 468).

In travel policies this could occur, for example, when an insured gives misleading or incorrect information as to the timings of seeking medical treatment while away, the timings or extent of reporting of a loss or theft, or some other inaccurate or untrue statement which, although seeking to strengthen or substantiate a genuine claim, does not change their entitlement to claim under the policy.

Policy terms

It has been demonstrated by case law that clear and compelling evidence is required to meet the burden of proving fraud. CIDRA only applies to information provided by the insured prior to inception of cover and any such misrepresentation may be deemed deliberate, reckless or careless, but must always be a ‘qualifying misrepresentation’. In addition, exaggerated and fraudulent device claims have been permitted, and fraudulent claims are limited to cases where an insured dishonestly claims for a loss that actually has not been suffered at all or to the extent asserted, or the insured knows is not covered.

Accordingly, in declining cover or termination of a policy, insurers should consider carefully whether there is a relevant policy term or condition precedent that may allow declinature in the first instance.

In the past we have seen instances where, for example, an insured has failed to disclose a pre-existing medical condition and thereafter has received treatment for such condition while travelling; an insured has failed to register with a UK-based GP in compliance with policy terms; an insured appears to have travelled for medical treatment; and examples of failure to notify insurers prior to seeking medical treatment. If those examples cannot be demonstrated to be fraud, or some sort of misrepresentation, then it will fall to insurers to carefully consider whether there has been a breach of a relevant policy term, exclusion or condition precedent to cover.

Conclusion

While the reports from IFED show a welcome prosecution of clear fraudulent claims, it is our experience that when considering an allegation of fraud to decline cover or terminate a policy, the burden of proof is very high.

Where evidence of fraud is not overt, insurers should carefully consider what information was provided prior to cover and whether there is any indication of misrepresentation. Thorough underwriting records, logs of telephone calls and emails will assist in this regard. In addition, due consideration should be given to carefully wording policies to allow their termination for misleading information, and any notice provided to the insured should comply with such terms under the policy to ensure their effectiveness.