Guidance on complaints involving insurance
This guidance explains the relevant terminology, sets out key overriding principles and examines some of the most common scenarios when dealing with complaints involving insurance issues. It also offers guidance as to what we consider to be fair in all the circumstances. However, each case is individual, and caseworkers should discuss anything they are unsure of regarding insurance related cases, with their manager or mentor.
Background
What is insurance?
Insurance is a financial product which aims to protect the insured person financially. It operates to ‘indemnify’ the insured person for any financial loss caused by one or more ways listed in the insurance policy. There are different types of insurance product – the ones most associated with housing are listed within Appendix 1.
When complaints arise involving insurance
A few situations can arise when dealing with complaints that also involve insurance claims. In most cases, this involves circumstances in which a resident is dissatisfied with the landlord’s actions or inactions. The resident is also claiming (or has been told to claim) compensation for damage to belongings/property or damage to their health.
The Ombudsman’s jurisdiction
The Ombudsman’s role under paragraphs 34.a and 41.b of the Scheme is to consider the acts or omissions by the landlord-member or those acting on behalf of the landlord. The complaint must relate to housing activities.
The management of an insurance policy is not a housing activity. Often the handling of insurance claims will not be an act done by (or on behalf of) a landlord. On that basis, we usually will not be able to consider what the insurer has said or done. Where the insurer steps into the shoes of the landlord by responding to a complaint (which is very rare) then we may consider what the insurer did on behalf of the landlord.
Terminology
It is important to understand some basic terminology when looking at complaints
involving insurance.
| Phrase | Meaning |
| Insurance policy | This is a contract which sets out the terms and conditions of cover. |
| The insured | This is the person who is named on the policy as insured who is entitled to claim. |
| The policyholder | This is the person named on the policy and may also be the person insured. |
| Peril | Policies cover loss and damage caused by perils. A peril is a ‘cause of damage’. It is any situation, incident or event that could give rise to a financial loss.For example, a buildings policy may say: “The insured is covered for loss/damaged caused by storm, tempest or flood”Storm, tempest, and flood are the ‘perils’. |
| Beneficiary | This is someone named as a beneficiary on the policy or someone who is not specifically named but is identifiable as someone entitled to claim a benefit under the policy.
In buildings insurance, a leaseholder will not be named on the block policy. However, the policy may list when the owner of the flat can claim on the policy. Any leaseholder of the block is likely to be a beneficiary under the policy by having a financial interest in their flat. |
| Liability | This refers to legal liability. Only the courts can determine legal liability. |
| Damages | McGregor on damages defines damages as:
“Damages are an award in money for a civil wrong...” In short, this is just the court's word for compensation. |
| Special damages | Quantifiable financial loss. This is compensation which can be financially calculated – such as the cost of a carpet or loss of earnings. |
| General damages | Compensation for losses which cannot be quantified; like compensation for pain and suffering, distress and inconvenience or loss of amenity. |
| Indemnity | Indemnity in insurance is the principle that the person insured should get back their losses and nothing less and nothing more (Castellain v Preston). For example:
A resident’s sofa is damaged by the landlord’s contractor spraying a mould removal solution on the walls. The sofa was £1,000 when it was purchased two years ago. It was in poor condition with pet scratches when it was damaged. The resident would only receive the value of a 2-year-old damaged sofa –not a new sofa. Often loss adjusters or loss assessors can be appointed who exercise expert skill in assessing the cost of an item(s) or financial loss. |
| Loss adjuster | This is an insurance expert appointed by an insurer to determine:
The loss adjuster may negotiate a settlement with the insured or claimant. |
| Loss assessor | This is an insurance expert appointed by someone other than the insurer. |
| Subrogate/subrogation | This is the act of the insurer stepping into the shoes of the insured person and claiming against third parties for any losses and the excess.
For example: A contents insurer pays to replace a shared owner’s damaged household goods and contents caused by a leak from outside their flat. Whilst the insurer pays the claim, it can step into the shoes of the shared owner and claim its outlay from the freeholder or landlord if it was responsible. It can also claim back the resident’s excess and other non-insured losses. |
The same set of circumstances and events can lead to both a formal complaint and an insurance claim. However, the issues being considered or determined, by who, the scope of the respective investigations, the standards of proof required, and the terminology used are different in each case. This is summarised below.
| Insurance claim | Formal complaint | |
| Compensation is | Claimed | Asked for/offered to |
| By the | Claimant | Complainant |
| Issue(s) to be determined | Negligence, breach of duty, liability | Service failure, maladministration |
| Determined by | Insurer, courts | Landlord/Ombudsman |
| With reference to | Legislation, public duty | Legislation, service standards, policies and procedures |
| Resulting financial compensation covers | Damaged property/belongings, damage to health, loss of income, loss of opportunity | Redress for any identified service failure(s) |
An investigation by an insurance company is different to a landlord’s consideration of a formal complaint. An insurer determining an insurance claim has a narrower focus than a landlord’s complaint investigation. A liability insurer is concerned solely with negligence and legal liability. A buildings or contents insurer is concerned with how the damage to the building/contents occurred and whether that is covered under the policy.
An insurance investigation is not concerned with identifying what went wrong or how things could be put right. It is not concerned with what learning can be identified to improve a landlord’s future service provision. It is concerned with:
- is the loss covered under the terms and conditions of the insurance policy
- has there been any breach of the terms or conditions of the policy
- has there been any fraud
- what was the cause of the loss or damage
- what would be indemnity under the policy
In this guidance ‘at fault’ is used throughout as a neutral term to mean doing something wrong. This could be ‘negligence’ if determined through an insurance claim or maladministration (including service failure) if determined following a formal complaint investigation.
The landlord’s position
Liability insurance protects a landlord’s financial standing by the insurer paying compensation where the landlord is at fault rather than this coming from the landlord’s finances. So, when a complainant raises concerns, the outcome of which may be compensation, it may be appropriate for a landlord to consider if the matter should be referred to its insurers to protect its financial resources.
It is important to note, that liability policies are a private contract between the landlord and the insurer. As with most contracts there will be express and implied terms and customs and practices within the insurance sector that must be considered. We should not ask landlords to take actions that will breach an insurance policy or could affect its cover under it. When making an order, we should consider if we are asking the landlord to do something contrary to its obligations under the contract of insurance. This means we would generally avoid telling a landlord to accept liability for a claim. However, we can order or recommend a landlord to refer a claim to its liability insurer.
Examples of insurance customs and practices
| Custom/practice or standard term | Meaning | Example |
| No admission of fault condition
|
Mostly in liability policies.
There will be an express or implied term in a liability policy that the policyholder or insured must not accept or admit liability. If they do, the claim will not be covered. |
A landlord provides a complaint response which admits fault and liability for a leak and causing damage to the resident’s home. The landlord passes the compensation claim for loss and damage to the liability insurer. The insurer could reject the claim because the landlord has breached the no admission of fault condition in the policy.
Landlords can prevent this from occurring by using ‘without prejudice’ in their responses or asking their insurer to comment first. In this case, it may not be unreasonable for a landlord to refer quantifiable financial loss or personal injury matters to its insurer in the first instance. If the insurer declines the claim, then the landlord should consider the matter under its discretionary compensation policy – taking into account the reasons why the insurer declined the claim. If the insurer declined the claim because of some default by the landlord or because the claim is less than a policy excess or deductible, then it would not be fair for the landlord to rely on the insurer’s rejection of a claim. |
| Gradually operating cause exclusion
|
These will feature in buildings and contents policies. As the insurance is to cover ‘sudden and unexpected’ events like fire, flood or storm – a gradually operating cause will not be covered. | The resident claims on their own contents insurance for damaged clothes caused by damp and mould. The insurer declines the claim on the basis that mould is gradually operating and is not sudden and unexpected. Therefore, it may be unreasonable for the landlord to refer the resident to their own contents or buildings policy where the damage was gradual – such as mould-related. The landlord can refer this type of claim to its indemnity insurer who will consider if the landlord was ‘negligent’. |
| Premium increases | Premiums are set taking into account:
Insurance policies are based on the principle of homogeny. This is where the insurer groups together certain risks and factors to assess the likelihood of something occurring in the future and bases the price of a policy on that risk. |
Example 1:
A building and contents insurer’s data suggests that homes in a certain postcode are more likely to be affected by pluvial flooding. Therefore, it increases the premiums of those within that postcode area and surrounding postcodes by up to 4 miles. This is even though there have been no claims for flooding in the last year. Example 2: The resident’s home is affected by a leak from the flat above. Her carpet and sofa are damaged. The landlord pays for the damage as a goodwill gesture. However, at renewal of the policy the resident is asked: “Have you had any claims or incidents (whether you made a claim or not) in the last 3 years?” The resident must answer yes to this, in which case this could still increase the premium even though the landlord paid for replacements. If they give a wrong answer to this question – their policy could be cancelled. This is because based on the landlord’s data the resident’s home could be perceived as riskier. |
| Privilege | This is a rule of evidence which prevents certain information being disclosed to third parties at all or as part of Subject Access Requests. Some communications between insurers, their insured and/or legal advisors are legally privileged. Some documents are privileged because they were prepared for litigation. | The landlord writes to the resident to say that the liability insurer declined the claim for personal injury. The landlord explained its insurer made this decision after an assessment of the facts and seeking advice from its solicitors and an insurance investigator. The resident asks the Ombudsman to order the landlord to disclose the insurer’s decision and the advice.
Whilst the Ombudsman is not bound by any rule of evidence in what we request; we should not be quick to order disclosure of these documents as they could be privileged. The matter of whether they should be disclosed might be better dealt with by the ICO under paragraph 42.j of the Scheme. |
Overriding principles
The Dispute Resolution Principals (DRPs) are key for both landlords and the Ombudsman in considering what a reasonable and fair response to an insurance issue is - in particular “be fair -treat people fairly and follow fair process”.
The DRPs underpin the following insurance specific principles that inform the Ombudsman’s view as to what is fair in all the circumstances when considering complaints involving insurance. This is as follows.
When is it appropriate to refer to insurers?
A landlord is entitled to refer any legal liability issues to its liability insurer before a complaint is raised. As set out above if the landlord accepts liability in a complaint response that could invalidate any potential claim it could make against its liability insurance.
There are times when it will be reasonable for a landlord to ask a resident to claim on their own insurance. This includes damage to buildings and contents insurance where there is a policy. Where a buildings or contents claim is complex such as where buildings need to be inspected or contents need to be itemised, or where the magnitude of loss of contents is difficult to establish, then it may be fair for the resident’s insurer to assist. An insurer can appoint a loss adjuster to assess the claim. If the landlord is at fault, then the insurer can decide to pursue the landlord for that cost. A landlord should make it clear in the complaint procedure what the signposting is.
If a resident is unable to evidence the level of damages they are claiming, it may be reasonable for a landlord to ask that the resident’s insurer determine the claim.
There will be times when it may be inappropriate for a landlord to refer a resident to its own insurer. For example, this is where the type of loss would not be covered under a buildings and contents policy. Another example is asking a resident to claim for loss of income or for damp and mould on a contents policy. This would not be reasonable.
A landlord should also appropriately signpost complainants for personal injury and/or any other insurance related claims. Landlords should signpost residents to the correct insurer.
There may be times where it is not appropriate for the landlord to refer a resident to its liability insurer. This could be where the resident has made vague unsubstantiated claims about stress or very minor health damage. It may be appropriate for it to refer to its liability insurer for personal injury where the resident has provided or says they can provide medical evidence to support this.
If a liability insurer has determined that a landlord is not liable to pay a compensation to a resident, for example, where an insurer had said there was no fault on the part of the landlord – then the landlord would be entitled to rely on that as a reason not to consider the matter further. The Ombudsman would still be permitted to investigate whether the landlord was responsible for maladministration or service failure in relying on the insurer’s decision or declining to consider discretionary compensation.
If a resident is dissatisfied with a liability insurer’s decision, it may still be appropriate for the landlord to raise and respond to a formal complaint and consider discretionary compensation. As above, if an insurer has declined a claim, the landlord should consider why and whether the claim was declined for its default to meet the insurance terms or because the value is lower than an excess or deductible.
Insurance claims v complaints
An insurance claim should not restrict a resident's ability to access a landlord’s formal complaints procedure in most cases. Residents must be able to raise a formal complaint even if an insurance claim is also being made, particularly if a resident has raised additional issues other than a request to be compensated for damaged belongings or damage to their health.
If a landlord excludes a complaint or part of a complaint from its complaint procedure because of an insurance claim – then paragraph 2.2 of the Code states it must explain this in full. The landlord should, therefore, set out what its policy says and why its insurer is best placed to deal with the matter.
A landlord should clearly explain to residents what issues can and will be considered through its formal complaint procedure and what will be progressed through its own or should be referred to the resident’s insurer.
A landlord can refer parts of the complaint to the insurer to comment on, if there are issues around legal liability. Some insurers could decline to respond until an event that triggers cover under the policy, such as a letter of claim being received.
It could be a potentially fair reason for extending deadlines in accordance with the Complaint Handling Code if a landlord wants to consult with its insurer first. The landlord has the ability to extend the deadlines by giving notice. Where it needs more time beyond these extensions, it must agree this with the resident. Delaying a complaint response indefinitely or outside the provisions of the Code will never be appropriate. The landlord should consider providing a response explaining the insurer is dealing with the claim and the landlord.
Paragraphs 6.6 (complaints at stage 1) and 6.17 (complaints at stage 2) of the Code requires the landlord to issue a response when an answer is known. So, the landlord can provide an answer that the insurer is dealing with an aspect of a complaint. The landlord would be entitled to update the resident as a follow up action with the outcome of the claim and its correspondence with the insurer once it receives this.
Where there are delays in receiving a response from the insurer, the landlord must be able to show it has chased the insurer.
It may be fair and proportionate for the Ombudsman to order compensation to the value of any damaged property/belongings as redress in such cases where the evidence shows the damage would not have occurred but for the maladministration.
Appendix 1 - Insurance types
There are 2 types of insurance that may be encountered in housing complaints.
Property insurance
Where the financial interest is in the property and having to replace it if lost or damaged. Contents insurance and buildings insurance are both types of property insurance.
Liability insurance (as held by landlords)
Where the financial interest is in the landlord’s financial resources and relates to the money that would have to be paid from its own finances if negligence is established.
These are explained in further detail below.
Contents insurance
This covers the moveable items and semi-permanent fixtures in a property (such as furniture, floor coverings like carpets or laminate and appliances) against loss or damage caused by fire, theft or escape of water (‘the perils’). Only the person who owned or was legally responsible for the household contents may claim under such a policy. Contents policies could be held by tenants or leaseholders.
Buildings insurance
This covers the building (often defined as the structure and foundations) and permanent fixtures on land against damage caused by the perils. Only a person who has the legal interest in the property may claim on the policy. Buildings polices are usually taken out by landlords but can be claimed on by leaseholders, who pay towards it and have a legal interest in the property. As tenants do not have a legal interest in their property they cannot hold or claim directly on a buildings policy.
Leaseholders are beneficiaries under a buildings policy that a landlord has taken out and which they contribute to via a service charge. They can make claims under the buildings policy for damage to their individual property. The landlord can make claims for any damage to communal areas of the building which may be covered under the building insurance.
Liability insurance
This covers the legal liability of the policy holder, for example where a resident (tenant or leaseholder) believes a landlord has been negligent and caused damage to household contents and the resident has no contents insurance. This can also include damage to health.
If a resident establishes that a landlord is legally liable for damage, the landlord’s liability insurer will seek to resolve the landlord’s liability by paying compensation that would otherwise have been paid through the courts.
If the insurer accepts the claim, it can agree a settlement with the resident that resolves all legal claims arising out of the incident. This would tend to cover:
- the cost of alternative accommodation
- quantifiable loss (special damages-this could include the cost of replacing household contents or the cost of alternative accommodation which the claimant has paid)
- unquantifiable loss (general damages – like ‘pain and suffering/loss of amenity’ in personal injury cases or ‘distress and inconvenience’ in property damage cases)
Such claims will not cover:
- general displeasure, upset or ‘sentimental value’
- ex gratia payments
- trouble and upset
Block policies
These are usually held by landlords to cover blocks of flats and can be both:
- a buildings policy and
- a legal liability policy
They will tend to cover damage/loss caused to the building and the common parts. They will also cover any legal liability of the landlord where their actions/inactions have caused damage to third parties.
Leaseholders also have a beneficial interest in such policies for their flats as they will pay towards them. Then, if their flat (leasehold) is damaged by a peril they may make a claim under the policy.
However, tenants who consider a landlord to be responsible for causing damage in their home have no rights to claim directly under such policies. Instead, theirs would be a legal liability claim and as such, the landlord would have to refer the claim to its own insurer.
Buildings warranties
Under a buildings warranty, the developer or landlord will take out the warranty (depending on who is commissioning the building). The resident will be a beneficiary under the policy once they take ownership of it.
The builders will be obliged to meet certain minimum standards set out in the warranty provider's building control code.
Usually there will be a defects period (often up to 24 months) where the occupier identifies any relevant defects. These will be passed back to the builder/developer to make good. After the 24-month period, if further defects are found – the warranty provider can elect to make good the defects under the warranty. This is only where the defect is a relevant defect and not just cosmetic. The warranty usually runs until the property is 10 years old. Any defects reported after this period are not covered by the warranty.
Appendix 2 – Common scenarios
A useful scenario to consider is where there has been damage to a resident's possessions from an escape of water. The variations of this scenario in terms of tenure, source of the leak and the appropriate option for seeking redress for the damaged belongings are examined below.
In such cases it is important to consider:
- Who was responsible for the part of the property where the leak originated (the landlord if from a tenanted flat or a communal space, or leaseholder). This is the person that bears the risk of any accidental damage.
- Was someone responsible for causing the leak because of an action (causing damage) or an omission (the party responsible for the repair failing to repair it in line with its obligations).
Following on from this, insurance may be relevant in terms of covering the responsible party’s costs in putting right any damage caused. However, the key matter to consider initially is who was responsible.
Accidental damage
In some cases, a leak that gave rise to damage may have been accidental – that is where it has been established that no one was at fault (by causing or contributing to the leak or failing to do something they should have to stop it).
In such a scenario where an accidental leak was from a tenanted property, the landlord is obliged to respond to a report of a leak (it must be given notice) within a ‘reasonable time’. Although this period is not specified by law, target times given within tenancy agreements, tenant handbooks or repairs policies give a strong indication of what is considered to be a reasonable time.
A landlord only becomes responsible for any damage caused by the leak to its tenants and third parties if it fails to carry out its repairing obligation within a reasonable time. For example, even if water from a burst pipe that was the landlord’s responsibility caused significant damage to third party properties and belongings, the landlord would not be responsible for any third-party damage so long as it responded and completed an appropriate repair within a reasonable time.
Similarly, if an accidental leak is from a leasehold property, the leaseholder is likely to be responsible for any damage caused by the leak to third parties if they have failed to fulfil their repairing obligations as set out in their lease or been proved to have been negligent or causing nuisance to the resident affected in any other regard. In both cases, if either the landlord or the leaseholder fails in their respective repairing obligations in response to an accidental leak, they become responsible for the cost of putting right any damage caused by the leak from the point at which their failure to comply with their obligation started. For example, if a leaseholder allows water to flow from their property into a tenanted flat below, whilst the landlord would have enforcement rights, the leaseholder could be ultimately responsible for negligence or nuisance to the resident affected.
Although the responsible party may subsequently involve their insurers in covering the cost of doing so, this is at their discretion and the key responsibility is on the
responsible party to repair and put right any damage caused by the leak to third parties’ properties and/or belongings.
Whilst home contents insurance policies may not include cover for third party liability, a number of specialist ‘leaseholder’ insurance policies do. In addition, in some cases a landlord’s buildings insurance may also cover leaseholders for third party damage.
However, if a landlord or leaseholder responds to an accidental leak and repairs it in accordance with its respective repairing obligations, they are unlikely to be responsible for any third-party damage. In such cases, it would be for the complainant to claim for any damage to their belongings on their own contents insurance policy. The resident would not have any other options for seeking redress for their damaged belongings should they not have such cover in place.
Non-accidental damage
If the landlord accepts that it may have been at fault or contributed to the cause of a leak, it may not be appropriate to ask a complainant to claim on their own contents insurance policy. The landlord, as the responsible party, should either put right any damage caused to its tenanted or leasehold properties by the leak and/or raise a claim on its own insurance policy for any damaged belongings.
If the landlord disputes that it has been at fault, it is reasonable for it to follow its policy for such claims and either refer a complainant to their own contents insurance policy or to the landlord’s own insurers. This is because an insurance claim will establish negligence and/or liability to pay.
However, as already outlined in the overriding principles, even if liability to pay for a residents damaged belongings has been denied following an insurance claim, it may still be appropriate for a landlord (and subsequently the Ombudsman) to investigate the circumstances of the leak. This is to determine if there was any service failure and whether any compensation is appropriate or reasonable.
Personal injury
If a complainant claims that theirs or their family’s health has been adversely
affected by a landlord’s actions or inactions, only a court can make a legally binding decision as to whether the landlord is liable to pay damages. As such it is appropriate for a landlord to refer such a claim to its insurers or to advise complainants to make a personal injury claim or seek independent legal advice.
However, we would still expect a landlord to investigate and respond to any dissatisfaction with other issues not related to the alleged damage to health as a formal complaint. It is also important to distinguish between stress and distress. Stress is a medical condition and any claim that a landlord’s actions or inactions have caused a complainant stress should be dealt with as above as a personal injury claim outside of the complaints process.
However, distress (along with inconvenience, annoyance and nuisance) is not a medical condition and a landlord should investigate and respond to reports that its actions or inactions have caused distress to a complainant as a formal complaint.
Buildings warranties
We might see a case involving a new build property where the landlord says the developer or warranty insurer needs to investigate the potential defect to see if they are liable for fixing it. The resident may have complained to the landlord that the defect has not been fixed and the landlord responded to say it could not fix the defect until the developer or warranty provider had assessed it and determined that it was not a defect. If it is considered a defect, then the developer or warranty insurer would be responsible for fixing it and the landlord would not be responsible for this.
In this scenario the landlord would be expected to liaise with the developer or warranty provider to try to speed up the investigation and repair process, but the landlord would not have direct control over how long the repair may take. The resident can also chase the warranty provider directly as it is the resident’s insurance policy, and the resident can complain to the warranty provider directly if they believe it has caused delays to a repair.
The landlord would not be expected to carry out a repair to a potential defect unless it is determined that it is not a defect which should be resolved by the developer or warranty provider. If the landlord did repair the defect before checking with the developer or warranty provider first, then this could invalidate the warranty meaning that defects may not be covered under it in the future.