When an insurance company turns down a claim, there are routes open for appeal. But do codes of practice cover behaviour in subsequent legal battles? Waltham Pitglow explains

Honesty, integrity, fairness and reasonableness are words that easily spring to mind when thinking of the code governing regulation and customer protection. But what do they mean and are there companies that really only pay lip service to the codes?

What should worry us all is that insurers and intermediaries are not required to report the detail of cases where members of the public take legal action that does not reach court. Indeed, it is very difficult to obtain information about what goes on in these cases.

However, from time to time there are cases that reach the courts and transcripts and public access are available. An example is the case of a litigant in person (LM) actually reaching the courts in his pursuit of fair treatment by ABC insurance company.

Legal costs
A litigant in person is someone who chooses to pursue an action through the courts without the help of solicitors or barristers. They are frowned upon by the judiciary, but tolerated.

LM's boat sank in a storm while laid up. The law (at present) says that ABC insurance company has a legal right to avoid paying the £50,000 claim and it has done everything in its power to do so. Legal costs amounted to £100,000 or more.

LM made a complaint to the ombudsman, but disclosure shows that ABC told the ombudsman that it thought LM was dishonest. LM was given no right of reply.

LM, who had invested almost all his assets in the boat, sued ABC and without any substantial means or legal aid took legal action as a litigant in person.

One important outcome of the trial was that ABC was in breach of the Association of British Insurers' (ABI) code of practice. This was referred to by the judge. Also, there did not seem to be any evidence that LM was dishonest in relation to the claim. So far, we may have a case of unfairness, but it is when considering what goes on behind the scenes that one begins to realise that the honesty and integrity of the whole case has to be considered.

Consider the spirit of the code. ABC paid a fee of £500 per day to its key witness of fact, the underwriter, who is now no longer in the industry. It may be legal but why pay someone £500 a day to confirm that a fact was material or not? The company paid no fee to its appointed expert on insurance issues. This is surprising. It is unusual for an independent expert to give evidence in court for no fee and in the event that this does happen one has to question why.

ABC advised the ombudsman that it doubted LM's integrity, but provided no evidence to support the statement. In cross-examination the allegation was not substantiated. ABC's solicitor wrote to key witnesses of fact reminding them that ABC doubted LM's integrity when asking them for statements. In court the insurer said it abided by the ABI code.

Awarded costs
Another aspect of the code is fairness. The insurer's solicitor claimed a sum in costs from LM at an earlier hearing and was awarded 75%, but two years later he admitted that the actual costs were about 50% of the figure claimed. ABC's solicitor also tried to charge LM for documents that should have been provided without charge to a litigant in person, and LM received a demand for £7,000 for a barrister to attend court for a half day.

Furthermore, LM was actually awarded costs during the legal process because ABC had put in an unnecessary application and then added that award to its claim for costs.

The solicitor also spoke to LM's expert witness before the trial and sought to persuade him that LM's case was hopeless.

Remember that an expert witness's duty is to the court and not to the litigants.

There are many more factors here, but the one that really sums up the situation is the account of an expert witness. He was puzzled that this case had gone to court with no evidence of fraud. So he put this question to ABC's solicitor during a break at the trial.

Difficult customer
He was told that ABC's managing director had instructed the solicitors that LM was not to be paid a penny. The managing director was apparently aggrieved that LM had upset him by insisting that he talk to him on a day that he was out of the office.

Perhaps this is a case of treating a difficult customer badly, but the purpose of this article is to focus on interesting points that relate directly to how a code of practice can safeguard integrity on both sides of a contentious issue.

The fact that this sort of thing goes on at all indicates why regulation is necessary. There are a number of points that embody the spirit of integrity and fairness, which are the bases of the regulatory code. These are:

1. Those involved with claims settlement need to be trained to withdraw honourably from a contentious situation, when an initial view is unfounded.

2. Systems are needed to check that executives or claims handlers are not allowing personal sentiments to influence complaints management

3. Agents, legal or otherwise, who represent you in handling complaints, need to be monitored independently.

If you really want to turn a claim down as a matter of principle, do remember that the image of your company in the marketplace is more important than getting your pound of flesh. A vindictive legal wrangle will attract the attention of the media, which could damage your company's reputation.

Fraud and dishonesty excepted, not all customers are going to be reasonable and pleasant to deal with, but appointing pit bull solicitors to hunt down and dismember angry customers is not good for business.

The questions this week will help you better to understand the reasoning behind compliance.

Question 1
Do you have a written complaints procedure and does every member of staff have a copy of it?

Question 2
Have all employees who have contact with customers been trained and assessed in dealing with complaints?

Question 3
Are those handling complaints independent of the underwriting or advice process in question and do you have a method of monitoring that complaints or dispute handlers are actually acting in a manner and making decisions that are fair and reasonable and that reflect the philosophy of your organisation?

If the answer is `no' to any of these questions it will be necessary to put into effect as soon as possible a written and rigorous procedure to deal with complaints.

ABC may not have had such a robust procedure, but the aftermath of this case may make it wish it did.

u This week's CPD is written by Waltham Pitglow, a specialist corporate investigator. The facts and names in this case have been adapted as it is not our intention on the CPD page to embarrass anyone. But the circumstances are real and focus on the learning point that regulators do not insist on a competent complaint handling culture just for their health.

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