When my 47-year-old husband, Nikolai, died of cancer he left me and our three dependent children with a £146,000 mortgage and a £250,000 life insurance policy to tide us over the next few difficult years. He died knowing his family would be cared for by Scottish Widows. Six weeks later, regarded by psychologists as the lowest point following bereavement, the insurance company sent me a letter refusing to pay the claim, citing "non-disclosure of material facts".
I was faced with repossession of the house and moving the children (aged nine, 12 and 15) out of their schools and away from friends. My friends told me to put the insurance issue behind me and move on: who was I, a housewife with a part-time job, to take on a huge corporation? But I knew my husband of 20 years to be an honest man. He would never have deliberately withheld medical information.
I, too, had been at the meeting where a Lloyds TSB adviser (Scottish Widows is the bank's life and pensions subsidiary business) had completed our application form for us on her laptop. So what had gone wrong?
Nikolai told her he had been suffering from unexplained fevers for about three months, but that they had recently stopped and he believed he had recovered. Hospital tests and scans had come back negative but he was due to go for more. The adviser, probably accidentally rather than intentionally (though commissions for policies can run into thousands of pounds), wrongly recorded that his fevers had ceased almost a year before our meeting rather than a month before. She also failed to detail the hospital tests. In fact, she made a number of glaring errors on the three-page computer printout application, including wrongly identifying us both as smokers, spelling our address and our names incorrectly, transposing vital dates and giving one-word answers about medical conditions where the form sought "full details".
We were given no opportunity to see the form, which was sent electronically to the Scottish Widows underwriting system immediately. We were then asked to sign a declaration saying we had read through the form and agreed with its content and to sign against our wrongly spelt names. We were told that the completed application form would be sent to us in the post.
I later discovered that it was never meant to be printed out let alone seen by us. Incredibly, the £250,000 contract came into effect three months later with our names still wrongly spelt. I was outraged when the company dismissed this as part of "a few typographical errors".
The automatic underwriting process loaded Nikolai's premiums by 75 per cent with no explanation and no further medical inquiries. Meanwhile, Nikolai naturally presumed this was because Scottish Widows had taken out a GP report following his disclosure of ongoing tests for his former fevers - and also because he had told the adviser he wasn't in good health. Yet it was only when the claim was made that the company decided it required a GP report and then began looking for evidence of non-disclosure - irrespective of whether it was linked to his death. This common practice is odious and devastating for the policyholder.
In fact, one in five life insurance claims is not met because of this kind of "post-claim underwriting". We knew none of this at the time and completely trusted the adviser and the underwriting system. Nikolai, Russian by birth, was an internationally acclaimed photojournalist and had seen a great deal of global corruption. He wanted to bring his children up in an honest, moral society with rules by which both corporations and public abide. He believed that Britain was such a society and would have trusted implicitly a big-brand insurance company.
But, like many insurance companies, Scottish Widows had abandoned its mutual status to become a public company whose sole responsibility is to maximise profits for shareholders at the expense of policyholders. The iconic, caped Scottish widow is just a PR path to profits now. Yet, ironically, the company was originally set up to protect real young widows during the Napoleonic Wars.
Like 548,337 other people that year, I took my case to the financial ombudsman. This service has seen a general upsurge in complaints from people like myself. It took me three years of intense internet research, mounds of paperwork and many weekends and evenings, time that should have been spent with the children.
The company was determined to see me off. I was forced to sell our family home and move to Somerset. Eventually, to my immense relief, three years after my initial complaint, the ombudsman finally upheld my case, finding that, "although the firm's decision to cover the complainant's husband may have been due to a mistake, this mistake cannot be attributed to the complainant's husband; in my judgement, it is attributable to its own automated underwriting processes and data entry error by its agent".
This system of selling policies has now been changed industry-wide, says Scottish Widows. After the final ruling in my favour on 17 August it issued the following statement, which it reiterated to the NS: "In June 2004, Scottish Widows received a life policy claim following the death of Mr Ignatiev. In July 2004 this claim was declined. We do not take lightly the decision to decline a claim, but in this case we were, and still are, of the view that there was material non-disclosure of relevant information. We recognise the important role of the Financial Ombudsman Service in such cases and have always maintained we will accept the final FOS ruling. This final ruling was received on 17 August 2007 and, as a result, we will be settling the claim."
Since Nikolai's death I have uncovered many pitiful and heart-rending stories, where bereaved or terminally ill people have been refused what was rightfully theirs.
Jan Trainer appealed to the ombudsman when her 43-year-old husband Dave was diagnosed with terminal cancer. Scottish Widows refused to pay out, relying on the innocent non-disclosure of an unrelated medical condition. "It's a blatant and cruel use of a technicality to renege on an agreement," says Jan. "As a solicitor, I am up against insurance companies on a daily basis; my work involves obtaining compensation for individuals injured in often very serious accidents. It never ceases to amaze me what tactics are used to avoid meeting their obligation to victims. And the people who have to take on these powerful companies are mostly vulnerable individuals already crippled with emotional pain."
It took the ombudsman's office only three days to uphold Jan and Dave's complaint.
Jerry and Rosemary Horsman, both farmers, were devastated when their daughter Alice was crushed in a farm accident, leaving two small children. Scottish Widows denied her claim because of innocent non-disclosure of a medical condition. Her parents took the case to the ombudsman, but had to battle for two and a half years for justice. "What still horrifies me," says Jerry, "is that the 2001 application form was ludicrously flawed. It was a cheap and cheerful policy to scoop up premiums.
"The inadequate application process makes it ridiculously easy for companies to cherry-pick medical evidence in order to wriggle out of paying. It's shocking to think how many of us are living in a fools' paradise thinking we have cover when we don't."
The ombudsman looks at what is fair and reasonable as opposed to the strict letter of archaic law. However, the Law Commission is now reviewing the 100-year-old insurance law and forward-looking judges, such as Lord Eassie (former chairman of the Scottish Law Commission), are aligning themselves with the ombudsman in recognising that the law is heavily biased against the consumer. Last year, Valerie Cuthbertson, a theatre manager, won a landmark ruling in court when Lord Eassie ruled that Friends Provident was wrong in denying her critical illness cover. Her appeal to the ombudsman had not been upheld but she fought on with the help of legal aid and won through the courts.
We are being mugged by the corporate world. Perhaps ordinary individuals who stand up against the big corporations are the have-a-go-heroes of personal finance.
Do we make a difference? I would certainly like to think so.
548,337 number of complaints each year to insurance ombudsman
1 in 10 UK adults admit to having cheated on an insurance claim
52% of people fail to check life policy details to ensure they have adequate cover
1st reason for life assurance after age 60 is to minimise inheritance-tax liability
70% of insurance sales included hidden extras of which customer oblivious
49% of people never know precisely what they have insurance for
10% rise in complaints about insurance to ombudsman in the year to 2006/2007
£750,000 paid in fines by one insurer after flaws in handling complaints
Research by Jo Barrett