The recent case
of Miss J indicates that the Financial Ombudsman Service (FOS) looks to be
taking a tough, pro-consumer, stance against insurers who try to
avoid liability for paying benefits under payment protection policies which pay
out should the person insured be made redundant.
Miss J worked
for a large high street retailer. At the same time as getting a new credit card
she took out payment protection insurance (PPI) to cover monthly
repayments on the card if she became unemployed because of sickness,
disability or redundancy. At that time there had been media comment about her
employer facing a difficult period but she had no reason to think she
would lose her job.
A few weeks
later her employer announced that it would be consulting about possible job
losses and in the event Miss J was selected for redundancy. The PPI
underwriters turned down her claim on the grounds that the PPI terms
excluded unemployment claims if the policyholder became ‘aware of any increase
in the risk of unemployment’ within 90 days of the policy’s start date.
She complained to the FOS.
The FOS upheld
her complaint. When Miss J took out the policy, she had no reason to believe
she was at risk of redundancy. At the time there was merely media
speculation about her employer’s future business prospects. No information was
available to suggest that Miss J as an individual may be at risk of losing her
If an insurer wants to exclude cover because a
policyholder’s knowledge or circumstances changed within the first three months
of a policy, then such an exclusion and the terms for it to apply, must be set
out very clearly. This had not happened in this case. The exclusion in this
policy was so broad that it was unfair