Upheld: claim settlement under proportional underinsurance clause and poor claims handling complaint against Chaucer Insurance Company Designated Activity Company

Decision detail

Summary

Mr S claimed for water damage under a buildings insurance policy with sum insured of £200,000, which Chaucer accepted. Chaucer later discovered the property's rebuild cost was approximately £840,000, leading to a proportional settlement. Mr S complained about the low settlement and poor claims handling involving delays and lack of communication. The ombudsman found Mr S failed to take reasonable care in underestimating rebuild costs (initially stating £300,000 then reducing to £200,000 to lower premiums), justifying proportional settlement. However, the ombudsman corrected Chaucer's calculation methodology and upheld the complaint regarding service failures, awarding additional compensation of £600 for distress and inconvenience caused by avoidable delays and poor communication.

The Ombudsman's reasoning

The ombudsman found that Mr S failed to take reasonable care in providing a fair estimate of rebuild costs, as evidenced by: (1) his estimate of £200,000 was significantly below the reasonable estimate of £840,000; (2) he provided no supporting assessment or enquiries; (3) he initially stated £300,000 then reduced it to £200,000 to lower premiums, suggesting he knew it was undervalued. Therefore, Chaucer's proportional settlement approach was fair. However, the proportional reduction should apply to all claim costs (including amounts already paid), not just the outstanding amount. Regarding service, while Chaucer was not responsible for delays caused by discovering underinsurance, it was responsible for avoidable delays and poor communication, warranting compensation.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website