Strange case of the mobile phone policy that didn't pay out

A woman whose handset was stolen in a bar found that her insurance didn't cover theft without violence.

Laura Pearce splashed out on mobile phone insurance to give her peace of mind that her phone would be replaced if it went missing. But she discovered the cover was useless when she reported her iPhone 4 was stolen as she sat surrounded by friends in a London bar in June.

"Claiming on my policy was supposed to be an easy, straightforward process," she says, adding: "I was told there would be a phone dispatched within 48 hours. The whole idea of taking out insurance was that it would provide peace of mind. That is how they sell themselves. Without that, what is the point of having the policy?"

It's a good question. Mobile phone insurance is becoming big business, with a fifth of adults having an insurance policy for their handset, according to a Mintel study. And analysts report that savvy consumers' propensity to look beyond their mobile operator for cover is driving more companies to offer phone insurance to get a slice of the market. But while insurers are tightly regulated, that won't stop them putting in what could turn out to be seemingly unfair clauses in their terms and conditions.

To be fair to her insurer, FoneSure, Laura had previously successfully claimed on the policy following the theft of her phone earlier this year. On that occasion, she got a replacement almost immediately, so she assumed that second time around it would be a similar story. However, when she reported the incident, providing a police crime number as required, she was shocked to be turned down.

"The phone was right in front of me and a group of friends on the table. I looked away for a moment or so and, when I went to pick it up again, it was gone," she says. However, crucially – as far as her insurer was concerned – she did not see the thief.

"I took the insurance deal out for the peace of mind it provides," Laura says. "The iPhone range is sought-after by thieves; it will fetch a decent amount of money, so these things happen. I decided to be on the safe side in spending out on cover." She bought the policy through a third party for £64 for cover for a year.

When she asked why her claim had been turned down, FoneSure told her it was because her policy does not cover her if there was no "violence or threat thereof" involved in the alleged theft. A letter added that she was not covered if there was no evidence of forcible or violent entry to the premises from which the phone was stolen. In Laura's case, the theft was from a bar, a happy hunting ground for sneak thieves who snatch phones.

"I called the company and asked for clarification. I was told that it was because there was no evidence of violence," Laura says. "I appealed and told them that I considered someone snatching my phone from right in front of me an invasion of my personal space and, therefore, and act of violence under their definition."

The response was not positive – there would still be no payout. Laura claims that this time, the insurer told her it did not consider there to be any evidence of a theft even having taken place, "despite the police report saying there had been and despite there being witnesses to it".

The terms and conditions provided by FoneSure confirm that its insurance policies, advertised as covering theft, exclude "theft of the Equipment from the person of the user unless involving force or the threat thereof".

Mike Wilson, mobiles manager for MoneySupermarket.com, says he has "never heard" of such a clause elsewhere within the industry and called it "open to so much interpretation". He says: "You could see why they have written it into the terms; anyone could potentially set up an incident in which their phone goes missing, so requiring evidence of some force would protect the company from some false claims. But that seems so open to interpretation."

FoneSure is refusing to consider honouring Laura's claim. A spokesman said: "The terms of her policy are clear: the claim is valid if either there was forced entry to the premises, or there was force used against the claimant. As there was no force used to steal the phone, the claim is invalid."

The insurer pointed out that Laura successfully claimed for the loss of her mobile phone a month previously, when in a separate incident she had her bag snatched in a bar. "That claim met the terms of the policy, and we paid her £510 compensation for her loss," the spokesman said. "While we review each case strictly on its merits, and the first incident had no bearing on the second, it does demonstrate that, where the policy criteria are met, we are happy to pay the claim."

Laura's only option now is to take her complaint to the Financial Ombudsman. In fact doing so may even encourage the insurer to pay up. Mike Wilson of Moneysupermarket says that, in his experience, insurers will not fight a case that far. "They would have to be very confident to take it all the way to the FOS. The company is subject to charges and most would be quicker to simply send out a handset, in the case of doubt."

Buying phone cover? What to consider

Mike Wilson, mobile expert at Moneysupermarket.com, advises:

* Make sure you shop around. With the value of handsets increasing certain providers have put their premiums up recently so shop around for the best deal.

* Think twice about claiming on your home insurance. You risk increasing your annual home insurance premium if you need to claim for a phone.

* As with any form of insurance, make sure you read the small print. The levels of cover available from one provider to the next may differ greatly.

Some of the things to check for are as follows: In what circumstances will your phone be replaced and in what circumstances won't it be? How long will it take for your phone to be replaced? If you are reimbursed the value of the phone, how do they calculate the value?

* Be aware that a number of providers will charge an increased premium if you want to cover yourself for loss as well as theft.

* Look out for the excess you have to pay to make a claim.

* Identify whether or not the insurance covers you for fraudulent calls – not all providers will cover you for calls made if your phone is stolen.

Is your mobile phone already covered under your home insurance?

Mobile users could be paying twice to insure their handset, according to giffgaff, a SIM-only mobile network. The company suggests that up to 5.7 million mobile users could be taking unnecessary insurance from their mobile provider when their handset is already covered by a home insurance policy.

"I'd urge anyone who's thinking about insuring their handset to check with their home insurer to avoid wasting their money," says Mike Fairman of giffgaff.

The doubling-up tends to happen for two reasons. First, few people realise the extent of their home insurance and the fact that it may cover their mobile phone. Second, phone users are bombarded with insurance offers when they buy a new handset. With mobile phone insurance charged at an average £8.20 per month, that could mean splashing out more than £100 a year on unnecessary cover.

There's been a rise in the number of mobile users taking out insurance in the last five years, as they want to protect their iPhones or Androids. "The price of mobiles is really rocketing,which makes consumers more wary about loss or damage to their new prized possession," says James Atkinson, editor of Mobile Magazine. "There is a lot of emotion involved when buying the latest mobile or gadget, so people's judgement can sometimes be a little clouded at point of purchase and the major mobile retailers should not take advantage of that."

"The mobile retailers will only be too happy to sign people up to high premium insurance policies, and they often apply the pressure using scare tactics to make consumers sign up on the spot," claims Fairman. "So it's really important that consumers are aware of which policies cover their handset."