A complaint against LV relating to the voiding of an income protection policy has been partially upheld by the Financial Ombudsman Service.
A complaint was made to the ombudsman after LV refused a cleaner’s claim under an income protection policy and voided her policy.
In May 2015, the complainant, referred to as Ms M, took out an income protection policy with LV through an independent financial adviser.
The policy was set up to provide a monthly benefit of £1,500 and LV asked her to provide evidence of her earnings over the last 12 months.
When she then made a claim, LV thought Ms M had misrepresented her earnings when she took out the policy, voided her cover and returned the premiums she had paid.
When Ms M applied for the policy she was a domestic cleaner and claimed to earn £43,200 a year but LV estimated that her annual salary was £38,832.
Ombudsman Chantelle Hurn-Ryan ruled that as her income wasn’t too far off the salary stated on the application form and she may have also expected her earnings to increase over the year as she gained more customers, £43,200 wasn’t unrealistic.
She said LV had failed to show that Ms M deliberately misrepresented her salary when she applied for the policy so ordered the provider to re-instate her income protection cover.
Ms Hurn-Ryan said: “I don’t think LV should have voided her policy on the basis that she made misrepresentations when she applied for the policy.
“Because of this, I think it should remove any record of the voidance from her records. It should also offer to reinstate the policy if Ms M wishes (subject to premiums being paid from the start).
“If she does want the policy reinstated, she may want to seek independent advice about the appropriate benefit amount. She can also provide further evidence in support of her claim if she wishes.
"LV says it finds it odd that Ms M would start her own business after becoming aware that she was pregnant, given that her business relies purely on her physical ability to perform her job. I don’t find this odd.
“Many women work in manual roles whilst pregnant. LV says that as Ms M was pregnant when she took out the policy, it assumes she couldn’t have had aspirations of a full year of earnings. I think this is a weak argument.
“We don’t know how long Ms M intended to take off work after having her baby. Some women choose to stop work for only a few weeks.”
Ms M moved to the UK in January 2015 and on 6 April 2015, while knowing she was pregnant, she started her own cleaning company.
It was just a month later that she took out the policy which said “We will cancel your policy if you…act fraudulently, deliberately provide untrue, inaccurate or misleading information when you apply for the policy, when making a claim, if you apply to change your policy or if you apply to re-start your premiums.”
Based on her earnings in the previous month, Ms M estimated her annual earnings to be £43,200.
She provided accounts for the period 6 April 2015 to 13 July 2015 that showed she earned £9,710 and dividing that by three, her monthly income was therefore £3,236 giving her an estimated annual salary of £38,832.
But Ms M also complained that LV refused to pay her claim on the policy.
The provider refused the claim as it had concerns about the information Ms M provided in support of her request for cash.
The provider didn’t think she provided enough evidence of her earnings for a claim to be payable.
While she provided LV with handwritten invoices for cash payments received between April and July 2015 the provider explained it needed to see accounts submitted to HM Revenue & Customs (HMRC) or a tax return.
In response, Ms M provided accounts for the period 6 April 2015 to 13 July 2015.
While the accounts appeared to be prepared by an accountant, they mention they are for the tax year ending 5 April 2015 but LV pointed out Ms M didn’t start her company until 6 April 2015.
LV also noted they weren’t on headed paper and weren’t signed by an accountant.
The accounts also made reference to the ‘Inland Revenue’, which hasn’t existed since 2005 when it was replaced by HMRC.
Because of this, LV did not accept the accounts as sufficient evidence of income.
The ombudsman backed LV’s decision to reject the claim on this basis and supported the provider’s decision that if Ms M supplied a tax return for the tax year 2015 to 2016 it would reconsider the matter.
emma.hughes@ft.com
