The Insurance and Financial Services Ombudsman (IFSO) has upheld a complaint against an insurer made on the basis that the insurer failed to do enough to bring an important change to a policy term to the insured’s attention upon renewal. The decision is an important reminder to insurers that they cannot rely upon changing policy terms upon renewal unless they take reasonable steps to bring important changes to their insured’s attention. 

What happened 

A couple returned home from holiday to find that their house had been broken into and a number of items stolen. They made a claim on their house contents policy, but the insurer declined the claim. This was because of a condition in the policy which required the house to be securely locked when unattended. The insureds had not complied with the condition, because while they had been on holiday, they had left a window open, albeit partially secured by security stays. 

However, this was a new condition. The insureds’ original policy had not included it. In May 2020, their policy had migrated to a new policy which included the new condition. At that time, the insurer had provided them with a renewal notification which contained a policy comparison table, but the table did not mention the addition of this condition. 

What the IFSO said 

The IFSO noted that the starting point for policy interpretation is that it is generally up to the insured to read and understand the terms and conditions of their policy. However, in this case, the condition was unusual amongst insurers, and other insurers tended to cover claims where the insured had unintentionally left a window unsecured. The condition was therefore unusual and onerous. 

The IFSO decided that, when inserting such a condition into a policy, there is a duty on the insurer to notify the insured of its existence. The steps the insurer had taken – providing an updated policy schedule in May 2020 but otherwise not drawing the condition to the insureds’ attention – was not adequate notification. The insurer was therefore not entitled to rely on the insureds’ failure to observe this condition to decline the claim.

Lesson for insurers 

This decision is a useful reminder for insurers of the importance of notifying insureds as clearly as possible of any material changes to the terms of their cover. Insurers should be mindful of the duty of notification when adding conditions to policies that exclude or limit cover. 

These could be relevant, for instance, in recent changes that insurers have made, such as introducing new exclusions for communicable diseases or cyber-attacks. The COVID-19 pandemic saw many insurers introduce communicable disease exclusions into their business interruption policies. Similarly, a recent rise in cyber-attacks has prompted insurers to limit coverage for such attacks by introducing increasingly complex conditions, such as the need for multi-factor authentication. 

The IFSO indicates that the duty operates on a sliding scale – the more onerous and/or unusual the proposed condition, the more extensive the duty to bring it to an insured’s attention. Providing insureds with a document summarising any changes, their significance and possible impact, accompanied by the wording of the new provision, will be a prudent step. Naturally, any such summaries must include all important changes and must not omit any upon which the insurer may wish to rely.