Honesty is the best policy for insurance forms

JUST how reckless are you when it comes to filling in an insurance application form? Judging from the sharp rise in the numbers of claims which are currently being turned down because policyholders have concealed relevant information, it might seem many of us are more reckless than we should be, writes Teresa Hunter.

Is it reckless, for example, if you have a history of alcohol problems not to declare on the application form that you previously attended Alcoholics Anonymous, even though you had stopped drinking some years earlier?

And is it possible to believe you are 6ft tall and weigh 16 stone when in truth you are 5ft 9ins in your socks and weigh 25 stone?

Insurers are perfectly within their rights to refuse to pay out on any kind of policy, if they believe a customer has withheld relevant information. That said, traditionally many companies have taken a sympathetic view where the oversight seemed innocent enough.

But that is no longer so. The sharp rise in disputes has led Financial Ombudsman Walter Merricks to study such cases in more detail, and last week he concluded that a distinction should be drawn between reckless and inadvertent non-disclosure.

He said: "Recklessness denotes a degree of not caring whether a disclosure is true or false so that a policyholder appears not to care about accuracy when completing the proposal form."

In one case, for example, an insurer refused to pay up under a life and critical illness policy after the customer had a heart attack on the grounds he had recklessly failed to disclose earlier neck and back problems.

The ombudsman accepted that it had been a one-off incident which had simply slipped his mind, and told the company to pay.

In another case, a woman had failed to declare that she had asthma, believing it to be only a minor medical matter and effectively controlled. The watchdog decided her insurer was wrong to object to paying up when many years later she developed breast cancer.

However, in another case, the ombudsman sided with the company, when an applicant rightly declared she did not drink alcohol on an application form, but neglected to state that she was receiving psychiatric help for a drink problem, nor that she had formerly attended Alcoholics Anonymous.

When she died some years later, the company refused to pay out on two life policies. The ombudsman agreed.

He said: "We concluded that there was no evidence that the policyholder had deliberately given the wrong answer. But neither was it likely that her answer had been innocent or inadvertent. She could not have stopped to properly consider the question or her answer. Had she done so, we thought it unlikely that she would have given the answer that she did."

Similarly, the ombudsman wasn't convinced that an applicant who declared he was 6ft tall and weighed 16 stone wasn't deliberately concealing the truth when he was in fact shorter and heavier. Against that background, he decided the company's decision to refuse the claim was fair when the policyholder died of a blood clot five months later, aged 37.