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ombudsman news

issue 49

September/October 2005

annual travel insurance: changes in medical circumstances after the policyholder has booked a holiday

Customers who have annual travel insurance policies often take several holidays a year and may book these some months in advance, never giving a thought to whether their policy will still cover them if they later become ill and have to cancel their trip.

However, as these policies are annual contracts, at the time of renewal customers are required to tell their insurer of any change in their health since the policy started, or was last renewed. In accordance with the regulatory guidelines and/or good industry practice, insurers should include a clear reminder about this on their renewal documents. However, they are not obliged to offer the renewed cover on the existing terms for the next year of insurance.

A problem can arise if, in good faith, a customer books a holiday that starts after the policy renewal date but then has a change in their health. When the time comes to renew the policy, the customer may properly inform the insurer about their new medical condition, only to be told that – from the date of the renewal – the firm will not provide cover for any claims arising from that condition.

The condition may not necessarily result in a claim and – as the holiday is often still some months away – the customer may not know at the time of the renewal whether the condition will affect their travel plans. Most travel policies only provide cover for cancellation that is medically necessary, which would usually be decided much closer to the time. Technically, therefore, the customer may not have the option of cancelling the holiday and putting in a claim before their valid cover expires.

The effect of this is that the customer is left to:

  • run the risk of being liable for cancellation costs (or even medical expenses abroad) without insurance cover; or
  • cancel the holiday prematurely (and possibly quite unnecessarily) and bear the cost of this.

We consider it neither fair nor reasonable that customers with annual travel policies should be placed in this difficult position.

If the customers had realised this situation could arise, they might well have taken out a single-trip policy instead. Such policies normally provide cover for medical conditions identified from the point at which a specific holiday is sold right up until its end.

We have therefore come to the view that – when the firm informs customers in this predicament that it cannot provide future cover – it should also give them the option of cancelling the holiday and claiming under the valid policy, even though cancellation may not be medically necessary at that stage.

Customers may, of course, choose to continue with their holiday plans – in the hope that their illness will not lead to cancellation or curtailment, or entail medical expenses abroad. However, they will at least then be aware of the implications of their decision and can freely choose whether or not to run the risk.

We also see cases where the problem only comes to light after the customer has attempted to claim for the cost of cancelling the holiday because it has become medically necessary. If the insurer has properly brought the need to disclose any change in their medical circumstances to the customer’s attention, but the customer has failed to do so, then – technically – the insurer may be entitled to avoid the policy (treat it as though it never existed) as a result of the customer’s non-disclosure. In practice, however, most insurers simply decline to pay the claim – on the grounds that the policy contains an exclusion clause relating to pre-existing medical conditions.

In this sort of situation, and provided there is no evidence of bad faith (deliberate non-disclosure) on the customer’s part, we would still expect insurers to offer to pay an amount equivalent to the costs of cancelling the holiday at the time the policy was renewed. (As it gets closer to the planned date of departure, cancellation becomes more expensive.)

case studies

annual travel insurance: changes in medical circumstances after the policyholder has booked a holiday

49/1
annual travel policy – policyholder discloses newly-diagnosed illness when renewing policy – firm offers right to cancel

In April 2004, Mr A booked a holiday to Cyprus, departing in March the following year. His annual travel policy was due to be renewed on 30 December 2004.

In July 2004 he was unexpectedly diagnosed with cancer and began having treatment. This was still ongoing when the time came to renew his policy. The prognosis was good, however, and he expected to be well enough to travel in time for his holiday.

When the firm sent Mr A his renewal documents, which clearly outlined the policyholder’s duty to disclose any change in health since the policy was last renewed, Mr A told the firm about his cancer. The firm responded right away, saying that – as from the renewal date – his policy would exclude any claims resulting from the cancer.

After Mr A complained to the firm about this, it told him that if he cancelled the holiday it would meet his claim for the cancellation costs. Unhappy with this, Mr A brought his complaint to us, saying he did not want to cancel his holiday, but was uneasy about travelling without full insurance cover.

complaint dismissed
There had been a material change in Mr A’s circumstances since his policy had started. This meant that the firm was not obliged to offer to renew the policy on the existing terms. It is not our practice to interfere with firms’ legitimate commercial decisions, such as the one it faced here regarding the underwriting risks.

The firm had offered Mr A the option of cancelling the holiday without any cost to him. We considered this to be fair and reasonable, in the circumstances. Under our rules we may dismiss a complaint if the ombudsman is "satisfied that the firm has already made an offer of compensation which is fair and reasonable in relation to the circumstances alleged by the complainant and which is still open for acceptance" [DISP 3.3.1(4)]. We therefore dismissed the complaint.

49/2
policyholder with pre-existing medical condition denied fair opportunity to make pre-emptive cancellation claim at the date of renewal

Miss J was a member of her employer’s group annual travel policy that was renewed in June each year. In January 2004 she booked a holiday for that September. Unfortunately, however, in April she was diagnosed with a minor heart condition. The condition was controlled with medication and her doctors were satisfied that she would be fit to travel by September. Miss J did not mention the heart condition to the firm when the policy came up for renewal, not least because all the renewal documentation was processed by her employer.

Shortly before her trip, Miss J suffered a heart attack and had to cancel. The firm rejected her claim for the unused cost of travel and accommodation, citing the exclusion clause in the policy that related to pre-existing medical conditions. Miss J then complained to us.

complaint upheld
There was no evidence of any bad faith on Miss J’s part – or of deliberate non-disclosure. She had simply not appreciated the nature of her travel insurance: that it was an annual, discrete contract.

The renewal documentation that Miss J received did not make it clear that she was under any duty to disclose any changes in her medical circumstances. And there was nothing that might have alerted her to the possibility that the holiday she had booked before her illness was diagnosed might not be covered after the annual renewal date.

We asked the firm to pay the full cancellation costs that Miss J incurred, rather than the (cheaper) costs she would have incurred if she had cancelled some months earlier, at the time the policy was renewed. This was because we were satisfied that the firm had breached its duty to inform customers of the need to notify it of material changes of circumstance. Miss J had never been given the opportunity to make an informed decision about cancelling at an earlier stage, before it was medically necessary.

49/3
policyholder became ill after booking holiday — firm should have offered to pay cancellation costs under the expiring policy from the date of renewal, even though cancellation was not medically necessary at that date

Mr G’s annual travel policy came up for renewal each March. Towards the end of January 2004, just a couple of weeks after he had booked a trip to South Africa for that December, he became ill with angina.

When the firm sent Mr G the policy renewal documents he told it about the change in his health. As a result, the firm added an exclusion clause to the new policy. This stated that the policy would not cover any claims arising directly or indirectly from angina. Unwilling to travel without cover for his angina, Mr G thought he had no option but to cancel the holiday, which he did (at his own expense) in April 2004.

Unhappy with the situation, Mr G complained to us. He said he resented having being "forced" to cancel his holiday and he wanted the firm to re-issue the policy on the same terms as before.

complaint partially upheld
The firm was entitled to impose an exclusion clause for a pre-existing medical condition which Mr G had disclosed in accordance with his duty of utmost good faith. That was a legitimate underwriting decision.

But we did not think it was fair and reasonable to leave Mr G with no cover at all for the holiday he had already booked. We felt that the firm should have given him the opportunity to cancel the holiday and claim under the expiring policy. Mr G did not have to take up this offer, but he would still be aware that his trip would proceed at his own risk. We therefore asked the firm to reimburse Mr G for the costs of cancelling his holiday.

Walter Merricks, chief ombudsman

ombudsman news issue 49 [PDF format]

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.