When Helen Kasher, a mother of two from Leeds, developed breast cancer at 42 and had to give up work she assumed the critical-illness insurance she had been contributing to for four years would pay out.

Kasher took out the policy with accountant husband Mike in 2001 to cover their £125,000 mortgage. The insurance, held by about 12m people in Britain, is supposed to provide a lump sum if the policyholder is diagnosed with one of a list of serious diseases, such as cancer.

So the speech and language therapist was shocked when Norwich Union, Britain’s biggest insurer, turned down her claim last year while she was undergoing chemotherapy.

The firm claimed it was invalid because she had failed to declare two bouts of postnatal depression. The depression had no relation to the cancer, but Norwich Union brushed that aside, forcing her to return to work part-time to meet her mortgage payments while she was still ill, although she is now in remission.

Insurers reject thousands of claims every year for so-called “nondisclosure”, and last week the Law Commission published a highly critical report that branded the practice a “trap”.

It said insurers put the onus on applicants to disclose every little medical detail, allowing them to reject claims because of mere oversights even where policyholders have acted honestly.

An ailment that involved a trip to the doctor but turned out to be slight may be forgotten or dismissed as unimportant. But as soon as a claim is made it can become the focus of intense scrutiny and provide the ammunition the insurer needs to throw it out.

The commission proposed radical reforms that will make it harder for insurers to wriggle out of claims.

It has suggested limiting the ability of insurers to throw out claims on the basis of nondisclosure after a policy has run for five years - a system used in most other countries.

It also wants claims to be paid, at least partially, where the nondisclosure is not related to the cause of the claim and the insurer would not have turned down the application at the start.

The Association of British Insurers said last week its guidelines already suggest insurers do this, but consumer groups said that cases like Kasher’s suggest the guidelines are too lax, enabling insurers to reject claims on the flimsiest of excuses.

Her dispute centres on depression suffered after the birth of her children, now 6 and 12. On the application form Norwich Union asked if she had suffered from mental illness or depression that had lasted more than three months. She answered no because, in her opinion, her depression had not lasted this long.

Norwich Union said a trawl through her medical records showed she took medication for longer than three months and that was sufficient to reject her claim.

Kasher said: “My GP backs me up as it is normal for people on antidepressants to take them for longer than symptoms persist. The answers I provided were truthful but Norwich Union has accused me of lying.”

After her claim was rejected Norwich Union cancelled all her family’s insurance - a critical-illness and life policy - returning the premiums, leaving them without protection.

Willie Mowatt, director of risk products at Norwich Union, said: “While the majority of critical-illness and life-insurance claims are straightforward and paid out in full, unfortunately a percentage are rejected because customers have not disclosed their full medical history and as a result their policies are actually invalid. This case was assessed, in line with ABI best practice, as an example of reckless nondisclosure.”

However, he accepts there is a problem in general. Norwich Union is in the process of contacting 5,000 of its customers with critical-illness and life-insurance policies, inviting them to confess to illnesses or medical conditions they failed to declare when they originally took out their plans. If it proves a success it could be extended to all of its customers.

Policyholders who disclose something that may affect their risk could see their premiums increased. In the worst cases, they could even see their policy cancelled - although Norwich Union said it is likely it would return any premiums already paid.

Friends Provident has also taken the step of declaring that if a policyholder failed to mention something on their application form by accident, and the claim is not related, it will make a partial payout.

Some insurers, such as Legal & General, also offer “tele-underwriting”. A representative of the insurer calls customers to guide them through the application process and the conversation is recorded. You can still have your claim turned down, though, if it is discovered you were not honest.

Despite the growing pressure, any changes to the law are not expected to be implemented before 2009. In the meantime, customers who are turned down are being encouraged to take their case to the Financial Ombudsman Service. The ombudsman receives about 1,000 complaints a year relating to nondisclosure.

Cases tend to go in favour of the consumer if the questions asked were unclear or related to something the applicant could not reasonably know.

The ombudsman can also order the insurer to pay up where disclosing the medical information would have made no difference.

MAKE A SUCCESSFUL CLAIM

- When applying, state all visits to a doctor no matter how insignificant. If in doubt, contact your insurer and ask for help.

- Insurers are supposed to follow a voluntary code of practice. If the nondisclosure was a mistake and wouldn’t have affected premiums it should pay the claim. If the undisclosed condition would have increased premiums, you should get a partial payout.

- A claim can be declined if the nondisclosure was a mistake but is so serious that the insurer wouldn’t have accepted the application. It can also turn you down even if it would have accepted the application if it thinks you lied or were ‘reckless’ – gave answers without caring whether they were true or false.

- If you disagree with an insurer’s assessment first complain to the company. You can then go to the Financial Ombudsman.

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