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The necessary steps before an insurance policy is put in place

Double insurance cover 

Sally and Brett contacted an insurance broker, Colin, to review their insurance requirements.  A few weeks later Colin met them to discuss his recommendations which included cancelling existing policies.  During that meeting Sally and Brett signed a number of documents including insurance application forms, declarations, consent forms and direct debit authorities. Colin told Sally and Brett not to cancel their existing policies until they received confirmation that their application for revised cover was approved. 

The following month when he had received confirmation from the insurance company that their application had been accepted, Colin emailed Sally and Brett to confirm the new insurance was in place, the policy documents should be received shortly and they should check them carefully. 

More than a year later Sally and Brett noticed the insurance premiums on their bank statements.  Sally and Brett contacted Colin telling him to cancel the policies.  Sally and Brett said they had decided not to proceed with Colin’s recommendations and did not realise the new policies had been put in place. Sally and Brett had not cancelled their earlier policies and did not believe the documents they had signed with Colin were legally binding.  Colin told them to contact the insurance company direct but if they cancelled the policies, he would charge them in line with the terms of his disclosure statement which said he would charge clients for consultations in particular circumstances. 

Sally and Brett contacted the insurance company and cancelled the policies. 


The complaint 

Sally and Brett believed Colin entered them into a contract of insurance without their permission.  Sally and Brett acknowledged they had received word from Colin that their application had been successful but they thought they had to take the further step of accepting the insurance before matters were finalised. 

Sally and Brett said there was nothing in the policy about charging a cancellation fee and they did not believe they should pay Colin any fee.  Sally and Brett sought a refund from Colin of all the premiums paid on the policies he had arranged. 

After Sally and Brett contacted FSCL, a third party acting on Colin’s behalf contacted them to try to resolve the complaint.  Sally and Brett felt bullied by this person who had tried to persuade them not to proceed with their complaint. 


Colin’s position 

Colin said he had at least two meetings with Sally and Brett before he came up with an insurance proposal that was acceptable to them.  Sally and Brett then completed all necessary paperwork including the application forms and direct debit authority in accordance with the Financial Markets Authority best practice guidelines and insurance policy requirements.  Colin did not accept Sally’s contention that he failed to notify them of the policy completion.  The insurance company had contacted Sally to finalise the policy and told her the process.  Colin also emailed Sally and Brett confirming acceptance of their applications and telling them to expect the papers shortly.  Colin told them about the 14 day free look period and the need to check the policies carefully. 

After several hours of face to face discussions and numerous emails and telephone contacts, it was difficult to accept that Sally and Brett did not understand they had signed a contract.  It was only after Colin had tried and failed to arrange a meeting with them to discuss Sally and Brett’s concerns that he asked an independent third party to try to reach a settlement with them. 

Colin said he had explained the fees and remuneration clause in his disclosure statement and Sally and Brett had confirmed their acceptance of those terms when signing the client advice acknowledgement. 


FSCL’s view and resolution 

We did not accept Sally and Brett’s argument that they had not entered into a contract of insurance or that Colin’s process was defective in any way.  There were several indications that the new policies had been arranged, in particular Colin’s emailed confirmation that the policies were in place.  Further, if Sally and Brett had checked their bank statements at an earlier date they would have noticed the extra premiums being charged, so they had to accept responsibility for their failure to do so. We did not think that there was any reason to ask Colin to refund the premiums paid by Sally and Brett. 

Colin’s disclosure statement specified the charge he could make for time spent in consultation with a client.  The Financial Markets Authority finds it unacceptable for an adviser to “claw back” from clients commissions that have to be repaid when a policy is cancelled but it is acceptable for an adviser to charge a fee for time reasonably spent on advising a client.  In this case, Colin submitted an invoice for $2188.31 for the time spent advising Sally and Brett but said he would not charge this fee if they agreed to withdraw their complaint. 

We were concerned that Sally had felt bullied when Colin’s representative contacted her without prior discussion with FSCL or Sally and Bretts’ agreement and we drew our concern to Colin’s attention. Sally and Brett decided to withdraw their complaint.