Partially upheld: claim handling and policy interpretation - refusal to pay settlement amount complaint against ARAG Legal Expenses Insurance Company Limited

Decision detail

Summary

J, a charitable trust, claimed under its legal expenses insurance policy after being sued for unpaid water charges. ARAG covered the legal costs but refused to pay the disputed water charges themselves, arguing they were not covered under the contract disputes section of the policy. J contended that ARAG had previously indicated it would cover these charges and that it settled based on this understanding, losing the opportunity to continue defending the claim. The ombudsman found the water charges were not covered under the policy as they constitute a contractual liability rather than a compensation award, and ARAG was not bound by any previous indication. However, the ombudsman upheld the complaint in part, awarding £175 compensation for the inconvenience caused by ARAG's misleading handling of the claim.

The Ombudsman's reasoning

The ombudsman found that the policy, read as a whole, only covers compensation awards that ARAG has agreed to, and such agreement is only referenced in employment and data protection sections, not contract disputes. Even if compensation were covered, the water charges constitute a contractual liability rather than a compensation award. While ARAG may have previously indicated it would pay the charges, it is not bound by this statement when the policy does not provide such cover. However, the misleading handling of the claim caused inconvenience warranting compensation.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website