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CHAPTER 11 PREMIUMS

Insurance Law and the Financial Ombudsman Service

11 PREMIUMS NON-PAYMENT AND OVERPAYMENT OF PREMIUM 11.1 In law, if the premium is unpaid, there is no cover, but the FOS might find that there is if there has been an understandable, innocent oversight. For instance, in Case Study 23/14, 1 the insured thought his car insurance had renewed automatically. He had not noticed that the premium was no longer being taken from his bank account. The FOS found this understandable in view of the small amount involved, and found no evidence that he had cancelled the policy as the insurer alleged. The failure to renew and pay the premium was therefore an innocent oversight, and the FOS asked the insurer to reinstate the policy and pay for the car repairs with interest, subject to the outstanding premiums. In Case Study 31/1, 2 the cover for the assured had been cancelled by the time of a burglary, because the insured’s bank had mistakenly cancelled the direct debit. The FOS attributed the blame for this as follows: 40% for the bank, 40% for the insurer (because it should have contacted the insured before cancelling cover) and 20% for the insured (because he should have noticed that no payments were being made over a six-month period). The insurer had to pay 40% of the claim less the outstanding premium. The bank had already offered £8,000 in full and final settlement in respect of its liability, which the insured had accepted, and the FOS was satisfied that this was fair and reasonable.

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