Critical illness policy with a hidden trap

A critical illness claim may go before the European Court of Human Rights because good faith was not enough for a policyholder to win £28,000 she felt she was entitled to.

Moneynet

A critical illness claim may go before the European Court of Human Rights because good faith was not enough for a policyholder to win £28,000 she felt she was entitled to. Alison Ridgway decided to buy a house in 1999, four years after a divorce and once she had finally saved enough by living with her parents to put down a deposit.

The 40-year-old planning officer from Fareham, Hampshire, was advised, like most people, that it was a good idea to take out insurance to cover her mortgage. She chose a critical illness policy from Friends Provident. The policy undertook to pay off her mortgage in the event that she contracted one of a number of serious illnesses which could have meant she was unable to work to make repayments.

The house buying went smoothly, and Ms Ridgway moved into her one-bedroom maisonette in February 2000. When most people would have been settling in, Ms Ridgway was given sad news. At a hospital appointment two days after moving house, she was told test results from a biopsy of a lump on her breast showed she had breast cancer, and not just the benign lump she had hoped for.

Ms Ridgway, who was only 38 when diagnosed, said: "I was gobsmacked when they found something was wrong. I was not in a high-risk category. There is no history of breast cancer in my family."

She had an operation at once to remove the lump and, as soon as she returned from hospital, contacted Friends Provident so that she could claim on her policy for a sum in the region of £28,000. After initially sounding positive about paying out, Friends Provident changed its mind and told Ms Ridgway that the company would not be able to honour the agreement because she had not kept them fully informed about the state of her health. Ms Ridgway recalls her reaction was "extreme shock, not a good reaction".

The problem, Friends Provident explained, was that between taking out the critical illness policy in November 1999 and making it active when she actually moved in February 2000, their customer had gone to the doctor and not informed them about it. Ms Ridgway went because of a cold, but in a routine check her doctor found a lump which she said should be checked in hospital. She had the lump tested in hospital in January 2000 and had her diagnosis on 21 February, just after her critical illness policy came live with the move to the new home.

Ms Ridgway says she did not inform Friends Provident of the trip to her doctor or hospital test because she was given the impression that it was very unlikely that there was something wrong. She says of her doctor, who supports her dispute with the insurance company: "When I went to see her she assured me she was convinced it was nothing but she was referring me to hospital as a matter of course."

Friends Provident takes a very different view. Graham Aslet, Friends Provident's appointed actuary, says: "We ask for full information from a customer which is up to date until the point we go on risk [when the policy comes into force]. The onus is on the customer to tell us everything."

Ms Ridgway says – and Friends Provident accepts this – that she did not deliberately try to mislead the company. She says: "I don't think people inform their insurer every time they go to the doctor for a cough or cold." She also points out that her policy says customers should inform the company when they have been diagnosed with an illness. Ms Ridgway feels she did this because, while the tests took place before she moved, the diagnosis came after the policy was in force. Friends Provident disagrees, and says application forms and letters remind customers that they must tell the company about a change in their health.

Mr Aslet says this is sometimes overlooked. "Our policy is to put customers back in the position they would have been in if they had got it absolutely right. So if they haven't told us about a trivial thing, it is not a problem. In some cases the new information would have made the policy more loaded, so we recalculate the claim."

Unfortunately, in Ms Ridgway's case, Friends Provident says it would not have been able to continue with its promise to offer her critical illness cover until it knew the outcome of her breast cancer tests.

Ms Ridgway describes the last two years, when she has had to deal with chemotherapy and frequent checks for fresh signs of cancer as well as battles with Friends Provident, as "absolute hell". After being off work for six months she felt she could not afford to live on half-pay and, because she was also unable to claim critical illness compensation, she had to return to work.

Ms Ridgway's MP, Sir Peter Lloyd, and the broker who arranged her cover support her argument that she acted in good faith and is entitled to her claim. Sandy Dawson, from the broker Roy Sansom, says that if Ms Ridgway had suspected she had breast cancer, she could have brought her move forward so her visit to the doctor came after the policy went live.

Ms Dawson says: "Life companies do err on the side of paying out for the sake of goodwill and I would have thought that a company with of Friends Provident's calibre would have paid out."

Nevertheless, the Financial Ombudsman, who was contacted by Ms Ridgway, upheld Friends Provident's position, saying she had a duty to inform the company about her consultations with the doctor and hospital. Ms Ridgway is considering whether she can take her case to the European Court of Human Rights.

Despite ruling in Friends Provident's favour, the Ombudsman acknowledged that Ms Ridgway was likely to feel disappointed. The watchdog pointed out in a recent newsletter that the whole critical illness assessment process is becoming much more complex, as medical advances mean illnesses are being detected more frequently and at an earlier stage than ever before, making the critical illness bill for insurers ever expanding.

As a consequence, insurers are cracking down on what can be described as critical illness, and considering moves to remove certain illnesses from cover because it is too expensive to provide. This is not what happened in Ms Ridgway's case, but consumers can expect increasingly stringent conditions on policies.

The Ombudsman maintains a tough policing policy and sometimes insists companies pay out even if customers do not meet the exact requirements of the policy. Friends Provident has itself fallen foul of the regulator, being ordered in several cases to honour policies when the Ombudsman thought it had not made the rule about disclosure of changes to customers' health clear enough. It has since changed its policy wording and, Mr Aselt says, is "confident we are in line with the Ombudsman's approach".

The company may be in the right, but it has left a customer feeling very disillusioned with the insurance industry. Ms Ridgway says: "I have been dealt with extremely shoddily. I've come to believe that people in the most vulnerable position in life have to fight for what they are entitled to."

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