An insurer must:
handle claims promptly and fairly;
provide reasonable guidance to help a policyholder make a claim and appropriate information on its progress;
not unreasonably reject a claim (including by terminating or avoiding a policy); and
settle claims promptly once settlement terms are agreed.
For contracts entered into or variations agreed before 1 August 2017, a rejection of a consumer policyholder's claim is unreasonable, except where there is evidence of fraud, if it is:
in relation to contracts entered into or variations agreed on or before 5 April 2013, for:
non-disclosure of a fact material to the risk which the policyholder could not reasonably be expected to have disclosed; or
non-negligent misrepresentation of a fact material to the risk; or
in relation to contracts entered into or variations agreed on or after 6 April 2013, for misrepresentation by a customer and the misrepresentation is not a qualifying misrepresentation (see ICOBS 8.1.3R); or
for breach of warranty or condition unless the circumstances of the claim are connected to the breach and unless (for a pure protection contract):
under a ‘life of another’ contract, the warranty relates to a statement of fact concerning the life to be assured and, if the statement had been made by the life to be assured under an ‘own life’ contract, the insurer could have rejected the claim under this rule; or
the warranty is material to the risk and was drawn to the customer's attention before the conclusion of the contract.
Cases in which rejection of a consumer’s claim would be unreasonable (in the FCA’s view) include, but are not limited to rejection:
for misrepresentation, unless it is a qualifying misrepresentation (see ICOBS 8.1.3R);
where the claim is subject to the Insurance Act 2015, for breach of warranty or term, or for fraud, unless the insurer is able to rely on the relevant provisions of the Insurance Act 2015; and
where the policy is drafted or operated in a way that does not allow the insurer to reject.
The Insurance Act 2015 sets out a number of situations in which an insurer may have no liability or obligation to pay. For example:
section 10 provides situations in which an insurer has no liability under a policy due to a breach of warranty;
section 11 places restrictions on an insurer’s ability to reject a claim for breach of a term where compliance is aimed at reducing certain types of risk; and
sections 12 and 13 provide for the extent to which a firm is entitled to reject fraudulent claims.
For contracts entered into or variations agreed on or after 1 August 2017, a rejection of a consumer policyholder's claim for breach of a condition or warranty (that is not subject to and within section 10 or 11 of the Insurance Act 2015) is unreasonable unless the circumstances of the claim are connected to the breach.
In this section, a “qualifying misrepresentation” is one made by a consumer before a consumer insurance contract was entered into or varied if:
the consumer made the misrepresentation in breach of the duty set out in section 2(2) of the Consumer Insurance (Disclosure and Representations) Act 2012 to take reasonable care not to make a misrepresentation to the insurer; and
the insurer shows that without the misrepresentation, that insurer would not have entered into the contract (or agreed to the variation) at all, or would have done so only on different terms.
[Note: section 4 of the Consumer Insurance (Disclosure and Representations) Act 2012.]
