Not upheld: unfair claim decline - lack of satisfactory reference complaint against ARAG Legal Expenses Insurance Company Limited

Decision detail

Summary

E, a limited company, complained that ARAG unfairly declined a Tenant Default claim under a Landlord's Legal Protection policy. A previous ombudsman decision had required ARAG to reconsider the claim. In reconsidering, ARAG declined the claim based on lack of a satisfactory reference, as the Tenant Assessment Report showed the tenant failed affordability checks and no guarantor was obtained despite being recommended. The ombudsman upheld ARAG's decision, finding that 'satisfactory reference' is a quality standard requiring the reference itself to be satisfactory, not merely that its constituent elements be present. Since the reference demonstrated unmitigated affordability concerns, ARAG fairly declined the claim.

The Ombudsman's reasoning

The policy requires a 'satisfactory reference' for each tenant. While the reference obtained contained the required constituent elements (previous landlord/managing agent reference, employer/financial source reference, and credit history check), it was not satisfactory because it demonstrated the tenant failed affordability checks. The word 'satisfactory' is a required standard, not merely a procedural requirement. Although the TAR recommended a guarantor to mitigate the affordability risk, E failed to obtain one. Therefore, ARAG fairly declined the claim based on the lack of a satisfactory reference. E's reliance on the letting agent's judgment and the tenant's initial rent payments does not override the clear affordability concerns identified in the TAR.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website