When Can an Insurer Reject a Claim?

What are the guidelines provided by the Financial Conduct Authority and Financial Ombudsman service when considering rejecting a motor insurance claim due to a policy condition?

The breached policy condition must have a direct affect on the loss.

For example, Illegal tyres in a theft case would not be a contributing factor to the loss. But if the vehicle had been involved in an accident and it can be determined that the resulting increased braking distance was a factor in the accident the insurer can consider declining the claim.

What is the policy condition relevant to claims for electrical and mechanical breakdown?

The is no cover for electrical or mechanical failure, but the consequential damage is covered.

If a claim resulted from a mechanical or electrical failure the resulting losses would be covered but the failed part would not.

For example, a tyre blows out on the motorway and the vehicle crashes into the central barrier causing panel and mechanical damage. Assuming the tyre was legal then the resulting panel and mechanical damage would be covered under the policy, but the tyre would not be covered. However, if the tyre was found to be illegal then there would be no cover whatsoever. 

What is a patent defect?

A patent defect is a condition that should have been noted by the average person. This could include low or uneven tyre wear which result in the tyres being illegal.

If the defect would have been discovered by the average person then there is potential for this to impact the claim.

What is a latent defect?

A latent defect is something that would not be obvious to the average person. This may include an enclosed mechanical component like a gearbox.

If a latent defect was the cause of consequential damage then the insurer has no right to reject a claim.