Travel insurance

Post-contractual disclosure

Often travel insurance is purchased, and comes into force, some months before the date of a holiday. Initially it operates solely in respect of the cancellation risk, with the full cover commencing at the time of departure. The closer to the departure date that cancellation occurs, the greater the cancellation fee, and hence the greater the claim. Some insurers have therefore sought to use contractual conditions to introduce a continuing duty of disclosure for the period between commencement and the departure date. The objective is to give the insurer the chance to deal with a cancellation claim at the earliest possible time and so minimise the amount of the claim.

The FOS gives an example of the problems that can arise. In June 1999 a policyholder booked a cruise for March 2000 and purchased travel insurance for himself and his fiancée. The policy obliged him to advise the insurer of any change in the health of those travelling or those upon whose health the holiday depended. If such a change was notified, the insurer was entitled to withdraw cover and simply make a payment in respect of the cost of cancelling the holiday at that time. In December 1999 the fiancée's mother was diagnosed with cancer. She underwent surgery in January 2000, but in February was told that further treatment was necessary. At that point the policyholder cancelled the cruise at a loss of £1,394 and notified the insurer. The insurer sought to settle the claim with a payment of £250 – the loss that would have been incurred if the cancellation had taken place in December 1999. However, the FOS recommended it should pay the balance of the loss plus interest. The FOS pointed out that the relevant policy terms were unusual and unduly onerous. Effectively, the insurer was the sole judge of whether a holiday should be cancelled – and in this case there was no evidence that there was good cause to cancel in December 1999. The insurer accepted this recommendation (Ombudsman News 1).

Suitability

The FOS suggests that for many customers travel insurance may be “the most complex financial product they purchase during the year.” In Ombudsman News 7 it has expressed concerns about the manner in which such insurance is sold:

Our experience is that not enough is done by the industry to explain these policies and to correct many of the common misconceptions about their scope. There is a general expectation that travel policies provide a financial remedy for almost every loss which can occur on a holiday, although almost all travel insurance policies contain strict limitations as to the sorts of loss covered and the amounts the insurer may have to pay.

These problems may in part reflect the fact that travel insurance is typically sold as an “add-on” product – either alongside a holiday or as part of a wider package of financial services. However, the view of the FOS is that there are also problems where travel insurance is sold as a stand-alone policy – with customers unduly focusing on price rather than on the cover or the quality of claims administration.

The FOS is clear that providing full documentation and a cooling-off period is not sufficient to ensure suitability:

... we do not agree that it is reasonable to expect customers to familiarise themselves with an insurance contract without any guidance at the point of sale. For travel insurance with its unusually complicated provisions, we would expect purchasers to rely heavily on the guidance they receive from the person selling the policy and from any brochure or summary they have received.

Pre-existing conditions

Cook v Financial Insurance

It is common for the cancellation and medical expenses cover under travel policies to be subject to an exclusion in respect of pre-existing conditions. The approach of the FOS in such cases is guided by the three-to-two majority decision of the House of Lords in Cook v Financial Insurance (1998).

Mr Cook was covered under a group disability policy which came into force on 15 October 1992. On the following day Mr Cook was diagnosed as suffering from angina, and in December 1992 he was advised by his doctor to cease work. He therefore made a claim under the policy. With the benefit of hindsight it was clear that Mr Cook had shown symptoms of angina prior to the inception of the policy. In July 1992 he had collapsed whilst on a training run and he had subsequently seen his doctor, suffering from pains in his chest and breathlessness. However, his doctor was unable to diagnose his condition: there was a range of possibilities including a viral infection, respiratory disease and heart disease. The doctor prescribed an antibiotic to address any infection and a Ventolin inhaler for the breathlessness.

There was an exclusion under the group disability policy for “disability resulting from … any sickness, disease, condition or injury for which [the policyholder] received advice, treatment or counselling from any registered medical practitioner during the 12 months preceding the commencement date”. Did this exclude claims for a condition which had not been identified at the time the policy commenced? Lord Lloyd was clear that it did not:

We now know that the plaintiff's disability resulted from a disease of the heart known as angina. In order to escape liability the insurers must show that the plaintiff received advice, treatment or counselling for that disease prior to 15 October. It is not suggested that he received counselling for angina. Nor, in my view, did he receive treatment for angina, since neither Ventolin nor a mild antibiotic could possibly be regarded as a treatment for angina. Did he then receive advice for angina? My answer would be no. He received advice in respect of symptoms which turned out to be those of angina, when he was advised to see Dr Flint. But he did not receive advice for angina.

The insurer was therefore directed to meet the claim.

Cancellation

In Ombudsman News 56 the FOS gave a clear example of the application of Cook v Financial Insurance to cancellation claims.

Mr K was concerned when he collapsed and briefly lost consciousness. He saw his doctor, who thought the episode was likely to be linked to the migraines from which Mr K suffered. However, she arranged for Mr K to have a brain scan, to rule out any possibility that he might have had a minor stroke. The appointment for the scan was on 27 September 2005. On 14 September 2005 Mr K booked a holiday and purchased a travel insurance policy.

Unfortunately, the scan revealed that Mr K had suffered a stroke. He was told that he should not fly for at least three months, so he was obliged to cancel his holiday. The insurer rejected his subsequent claim on the basis that the policy excluded cover for “any condition of which the policyholder was aware at commencement of the policy or for which he received advice, treatment or counselling from any registered medical practitioner during the 12 months preceding the commencement date, whether diagnosed or not”.

The FOS was satisfied that at the time the policy was purchased both Mr K and his doctor thought that the collapse had been caused not by a stroke but by a relatively minor ailment. Applying either a fair and reasonable approach or the law as set out in Cook v Financial Insurance produced the same result – the insurer should meet the claim.
It should be noted that this appears to supersede the guidance in Ombudsman News 7 that exclusions of pre-existing conditions will apply to “all medical conditions, regardless of whether the policyholder’s doctor has identified the cause of the problem”. However, Mr K would probably have succeeded under the Ombudsman News 7 guidance, since it was subject to one exception. The FOS would not allow an insurer to rely on a exclusion of pre-existing conditions in cases where there had been a misdiagnosis.

Medical expenses

Standard travel policies exclude medical expenses incurred whilst on holiday as a result of pre-existing medical conditions. However, many policies also recommend that policyholders should contact a medical helpline – operated on behalf of the insurer – for advice if they have recently seen a doctor, are taking medication or having treatment or are on a waiting list for tests or results. The intention is that the insurer can decide whether or not to offer cover for the pre existing condition, and quote an additional premium if appropriate.

The FOS warns that unless an insurer makes it clear that medical expenses for pre-existing medical conditions are excluded and stresses the importance of contacting the helpline, it may not support the application of the exclusion to a subsequent claim (Ombudsman News 7).

Annual contracts

It is now common for travel insurance to be sold as an annual contract rather than as a policy linked to a specific trip. This gives rise to a particular difficulty. Suppose a policyholder develops a medical condition after booking a holiday which is not due to commence until the next policy year. It may not be immediately clear whether the policyholder will be prevented from taking the holiday. The policyholder will therefore be unable to make a cancellation claim. However, at the next renewal date, the condition must be disclosed. The insurer may then seek to introduce an exclusion to remove all cover in respect of the condition.

This issue was considered in Ombudsman News 49. The FOS gave two case studies from which a broad principle may be extracted.

If a medical condition arises after a holiday is booked for a subsequent policy year, and the insurer is intending to exclude cover for that condition from renewal, the policyholder should first be given the option of cancelling the holiday and making a cancellation claim.
The policyholder may then take his or her own decision: decide to continue with the holiday and risk an illness which is not insured, or avoid that possibility by cancelling the holiday and receiving a claims settlement.

In some cases a policy condition may require any changes in health to be declared during the term of the policy. Such a condition was considered by the FOS in Ombudsman News 64. The insurer argued that it was impossible for it to give any guidance about what types of change of health needed to be disclosed, since apparently minor ailments could be symptomatic of serious illness. When the insurer was notified of a change of health it decided whether or not to withdraw cover for the illness concerned.

In the case in question, the policyholder had notified the insurer of a heart attack he had suffered five years earlier. However, he had not mentioned a temporary loss of vision and a change in medication some four months before he departed on holiday. Whilst away he suffered a further heart attack. The insurer rejected the resulting claim, relying on the breach of the poilcy condition.

This approach did not meet with the approval of the FOS. It highlighted two concerns:

  • The requirement to declare any change of health as it occurred was in itself onerous.
  • The result of the insurer’s approach was that the policyholder could never be certain what cover would be available under the policy. Unless an illness arose without warning, the disclosure of early symptoms could result in the insurer withdrawing cover.

The FOS stated an important general principle:

We do not consider it fair for an insurer to use a policy condition to achieve an effect that would not be apparent to a reasonable policyholder, and that would place onerous demands on them.

On this basis the insurer was required to meet the claim.

From Ombudsman News 64 it is also apparent that the FOS will construe such conditions strictly. In one case the FOS expressed concern that there was no explanation of the term “change in health” and that the policy condition had not been drawn to the policyholder's attention at the point of purchase. Consequently the FOS decided that “change in health” should in this case not include “change in medication”.

In contrast, the FOS recorded its approval for the steps that another insurer had taken. The insurer had set out in the policy summary the obligation on policyholders to declare any changes in their health, it had made it plain what it meant by “changes in health”, and it had sent policyholders a clearly worded reminder each year. However, whilst deciding the case in favour of the insurer, the FOS suggested it could usefully go one step further by sending policyholders a note of the health information provided in earlier years.

Baggage

Most travel insurance cases considered by the FOS relate to baggage (Ombudsman News 7). Five areas are identified as giving rise to particular problems:

  • the exclusion of claims for baggage left unattended or in vehicles;
  • the rejection of claims in respect of items for which receipts or a written police report cannot be produced;
  • the application of a range of limits to losses arising from one event (for example, a theft of baggage
    may involve single item limits, limits applicable to valuables and limits applicable to money);
  • the deduction of excesses;
  • the settlement of claims on an indemnity basis rather than new-for-old.

The FOS regards such complaints as being caused at least in part by a lack of clarity in the relevant documentation:

Travel policies do not offer redress against all the things that may go wrong during a holiday. If the industry made this clear when marketing these policies, and improved both clarity and simplicity of policies and the information available at the point of sale about what is and is not covered, then the disappointment so often expressed by consumers might well be avoided.

There is a clear warning about the likely consequences if these issues are not addressed:

In the absence of compliance with industry codes and in the face of complex policies, it will be for the ombudsmen to consider where the reasonable expectations of policyholders should be met.