Claim puts the skids under car insurance: A total loss can mean instant cancellation. Ian Hunter explains

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MARK MARRIOTT was not having much luck. On 5 January his car was stolen. He submitted a claim to his insurer, KGM Motor Policies at Lloyd's. His insurance policy covered him to drive not only his own car but others as well. The policy was not due to expire until mid-March.

On 9 February he phoned his brokers, Prestige Insurance of Middlesex, to ask for an insurance quote on a new car. When he provided the number of his present insurance policy, he was told the policy had been cancelled the day he had made a full claim. He was told that the terms of the policy provided for this.

Mr Marriott was referred to the section that stated: 'In the event of the settlement of any claim for damage to the insured vehicle on a total loss basis the insurance shall immediately be terminated with no return of premium due to the insured.'

Mr Marriott pointed out his claim had not been settled. 'They told me I had been uninsured for about five weeks. During that time I had been driving my mother's car, under the impression that I was covered by my insurance, and unaware that if I had crashed into a Rolls-Royce I would have ended up heavily in debt.' It is, in addition, an offence under the Road Traffic Act to drive a car without insurance.

The following day he had a similar conversation with the insurers. Mr Marriott comments: 'When I asked for reasons as to why my policy had been cancelled without notification, the attitude adopted was very much, 'We're the insurers, we can do as we like.' '

He consulted a solicitor who contacted the insurers, which then sought to assure him that if Mr Marriott had been involved in an accident, the company would have covered him.

Mr Marriott then applied to the insurers to recover the premium for the five weeks in which he alleges he was not insured. Eventually, when settling his claim resulting from the theft of his car, the settlement figure was increased by pounds 50 'in an effort to compensate you for any inconvenience caused while there was some debate as to whether your DOC section was operative or not'.

Most insurance companies provide in their policies that once a full claim is settled the policy will be cancelled.

The Road Traffic Act 1988 stipulates that once a policy has been cancelled by mutual consent, the policy-holder must surrender the certificate of insurance to the insurer within seven days. If the policy has been lost or destroyed, the insured must confirm this by means of a statutory declaration. Failure to comply with these provisions could lead to a criminal conviction.

Those who are unhappy with the service provided by their insurers can register a complaint with the Insurance Ombudsman Bureau, provided that the insurer is affiliated to the bureau, which now has more than 330 members.

The ombudsman will intervene only when insurer and insured have failed to reach agreement. He is independent and impartial, and has the power to make awards of up to pounds 100,000 against insurers if he believes the insured has been unfairly or incorrectly treated. Last year the ombudsman made orders in favour of aggrieved policy-holders amounting to pounds 4.5m.

There is no charge for using the ombudsman's services, but he will not intervene where the matter has already reached legal proceedings. The main advantage of applying to the insurance ombudsman is that he can deal with complaints more quickly and informally than the courts.

The ombudsman will only intervene once the insurer's internal complaints procedure has been fully exhausted. Luckily for Mark Marriott, this did not prove necessary.

(Photograph omitted)