Upheld: Travel / life insurance claim disputes complaint against Liverpool Victoria Life Company Limited
Financial Ombudsman decision DRN-3843280 of 2023-01-11T00:00:00+00:00. Travel / life insurance claim disputes complaint against Liverpool Victoria Life Company Limited. Outcome: Upheld.
Decision detail
| Reference | DRN-3843280 |
|---|---|
| Decision date | 2023-01-11T00:00:00+00:00 |
| Firm | Liverpool Victoria Life Company Limited |
| Product | Life / income protection |
| Claim type | Travel / life insurance claim disputes |
| Outcome | Upheld |
| Remedy | LV must recalculate each rehabilitation benefit payment between 5 February 2018 and 31 May 2021 using the policy formula and pay Ms S the difference between what was paid using the hours-based approach and what should have been paid. Interest at 8% simple per annum must be added from the date each payment should have been made until settlement. LV must provide a tax certificate if it deducts income tax from the interest. |
Summary
Ms S held a personal income protection insurance policy and made a valid incapacity claim following a cancer diagnosis in 2016. When she returned to part-time work in February 2018, LV calculated her rehabilitation benefit using an hours-based approach rather than the formula specified in the policy terms. LV justified this by arguing that as sole director of her limited company, Ms S could have paid herself a higher salary but chose to retain profits in the business. The ombudsman upheld Ms S's complaint, finding that LV was contractually bound to use the policy formula which defines income as actual taxable earned income, not potential income. LV was directed to recalculate all rehabilitation benefit payments from February 2018 to May 2021 using the correct formula and pay Ms S the difference plus 8% simple interest.
The Ombudsman's reasoning
The ombudsman found that LV was contractually bound to calculate rehabilitation benefit using the formula explicitly set out in the policy terms. The policy defines 'income' as taxable earned income actually earned, not potential income or profits that could be drawn. LV had not defined 'entitled to receive' to include company profits and was not contractually entitled to deviate from the formula. The financial evidence showed Ms S's actual taxable earned income was approximately £8,040 per year plus dividends, which is what should be used in the calculation. While income protection insurance is indemnity insurance, LV cannot unilaterally reinterpret contract terms at the point of claim. The ombudsman rejected LV's argument that considering only actual income would allow Ms S to profit from the policy, as this conflates potential future profits with actual pre-incapacity income.
How this compares
| Group | Decisions | Uphold rate |
|---|---|---|
| Liverpool Victoria Life Company Limited, all decisions | 24 | 33% |
| Travel / life insurance claim disputes, all decisions | 20,052 | 31% |
| Life / income protection, all decisions | 10,704 | 20% |
Source
Read the original decision on the Financial Ombudsman Service website