Can an insurance company legally sell an unclaimable policy?

Question

Can a insurance company legally sell a policy that cannot be claimed?

A colleague of mine has just returned from a visit to a country that's currently at war. He purchased a (very expensive) insurance policy beforehand. Before purchasing he questioned why it was so expensive and was told it was due to the war.

The UK Foreign Office currently advise against all travel to the country.

After returning, he spotted that the small-print in the policy states that the policy is invalid if the Foreign Office advise against travel to that country.

The insurers have refused to issue a refund, but have also admitted that they wouldn't have paid out if a claim was made. They've suggested that the buyer should have read all the small print before-hand! They've also implied that they weren't aware of their own small print that made their policy invalid!

For clarity - the policy was for a weeks travel to a single, explicitly named country, the war has been going on for some time and the foreign office has been advising against all travel for many months. The small print indicates that the entire policy is voided by the foreign office advice - so even if the trip was cancelled because of an accident on the way to the airport in the UK, the policy wouldn't have paid out.

I can understand the concept that a buyer is responsible for checking that a purchase is suitable for their needs, but selling an un-claimable insurance policy seems akin to selling a plane without wings, a lead life-jacket or a chocolate tea-pot.

Answer 1

In a situation like this the Consumer Rights Act 2015 might be able to assist you, depending on the facts.

For example, if the insurer stated to the consumer that they would be covered despite the ongoing war, then that is capable of becoming an implied term of the contract under Section 50(1):

Every contract to supply a service is to be treated as including as a term of the contract anything that is said or written to the consumer, by or on behalf of the trader, about the trader or the service, if - (a) it is taken into account by the consumer when deciding to enter into the contract, or [...]

More generally, you might be able to rely on Section 62(1):

An unfair term of a consumer contract is not binding on the consumer.

The argument here would be that the term is unfair as it has the effect of rendering the entire contract unfit for the purpose for which it was entered into.

Also more generally, you could claim damages and/or rescission of the contract under the principle of misrepresentation, provided that you can make out all the necessary elements.

The available options are:

1. Follow the insurer's complaints procedure and then escalate to the Financial Ombudsman Service. The advantage of doing this is that it's both free (you pay nothing) and risk-free (you won't pay the other side's costs if you lose), and you have the option of accepting or rejecting their decision. If you accept, it is binding on the insurer. If you reject, you can still go to court. The disadvantages are that it can be very slow and decisions are lower quality than what you can expect from a judge.

2. Issue a claim in court. This will require paying court fees, legal fees (if you hire a lawyer), and the risk of paying the other side's costs if you lose (although this can be avoided if the claim is allocated to the small claims track). However you're more likely to get a decision that is the legally accurate one.