Many insurers exclude cover for consequential losses - losses
that are not directly caused by the insured event. But while the
phrase may be familiar to lawyers, its technical meaning is not
properly understood by most people, who could be left unsure as to
what is covered by the policy, the FSA warned in a statement issued
this month.
The FSA believes this may be a breach of the Unfair Terms in
Consumer Contract Regulations, which prohibit terms that
disadvantage consumers by creating a "significant imbalance" in
bargaining power between the parties. The regulations also require
written terms in standard consumer contracts to be set out in
plain, intelligible language.
Examples of alternative wording suggested by the FSA
include:
"You are not covered for any other costs that are indirectly
caused by the event which led to your claim, unless specifically
stated in this policy", and
"We will not pay for any losses that are not directly covered by
the terms and conditions of this policy. Examples of losses we will
not pay for include loss of earnings due to being unable to return
to work following illness or injury happening while on a trip".
In June this year, the FSA warned insurers that they needed to
do more to ensure their consumer contracts do not include unfair
terms, including regular reviews of all wordings and monitoring
information and updates published by the FSA and the Office of Fair
Trading.
"From insurers' point of view, it makes sense to get it right,"
said Emily Bourne, an insurance law expert at Pinsent Masons, the
law firm behind OUT-LAW. "An unfair term will not be binding on the
consumer, so insurers could find themselves paying out for claims
they thought they had excluded."
