Norwich Union, Britain’s biggest insurer, has refused to pay out life insurance to a widow with two young children, as fears grow that consumers are being let down when they are at their most vulnerable.

Insurers regularly wriggle out of claims on the basis that policyholders have failed to disclose full medical details when they applied for cover, even where the details are apparently irrelevant to the claim. Latest figures show one in a hundred life-insurance claims and one in five critical-illness claims are thrown out on this basis, which insurers term “non-disclosure”.

The Law Commission is so concerned that it wants to tighten up the rules to provide more protection.

Consumer groups claim that application forms ask ambiguous questions that leave the average consumer vulnerable to an oversight.

Insurance salesmen are so keen to bag a sale, which can earn them commission of up to 200 per cent of your first year’s premiums — £1,600 on a typical life policy — that they rarely check medical histories at the outset. Instead, they pore over these records after a claim is made.

The commonest of ailments, forgotten or considered insignificant, can then become the focus of intense scrutiny and be sufficient to invalidate a claim when customers are at their most vulnerable.

This is what happened to Nicola James, a magazine publisher from Richmond, Surrey. She had a claim on a Norwich Union life insurance policy rejected after her husband died of a heart attack in 2004, aged 45.

Nicola and Alan took out a joint term assurance policy with the insurer in 2003 after moving into a new home. In the event of the first death it was supposed to provide a £236,000 lump sum to pay off the mortgage.

When Nicola tried to claim after the death of her husband she was turned down flat by Norwich Union, citing a failure on his part to declare relevant medical information.

After several months of trawling through Alan’s medical records it claimed “deliberate and reckless non-disclosure”. Norwich Union pointed to a question on the application form that asked if he had any numbness or dizziness. Alan answered no, even though Norwich Union alleged he had shown these symptoms when he suffered a torn artery in 1998.

Nicola disagreed and took her fight to the Financial Ombudsman Service. It first indicated that it upheld her complaint, but when Norwich Union appealed, it changed its position. The ombudsman went even further than Norwich Union, claiming that the torn artery had in fact been a stroke, which Alan had failed to declare.

Nicola’s solicitor, Jack Leonard at Stewarts, said the assertions by Norwich Union and the ombudsman did not stack up. He said: “We viewed the series of medical reports at the time he was admitted to hospital and there is nothing in the consultant’s notes to suggest that he had, or was told he had, suffered a stroke. How could he declare what he hadn’t known?”

As for the numbness and dizziness, Leonard said the question was connected to multiple sclerosis and the symptoms of MS. As there was no question of Alan showing signs of MS he was answering truthfully when he said no.

Nicola said: “Life insurance is supposed to provide peace of mind but the way Norwich Union and the ombudsman have dealt with me has been unfair and careless. If there has been any non-disclosure on my husband’s part it was entirely innocent and we never had any intent to defraud or induce the insurance company into issuing cover that it didn’t want to issue. I’m left feeling utterly confused and frustrated by my attempts to get a fair decision.”

Nicola believes that Norwich Union should have clarified whether it was happy with the couple’s application by checking the medical reports at the outset. Even though the couple agreed to this when they made their application, Norwich Union had not bothered to do so.

“Had my husband not died, we would have paid 25 years of premiums for a policy that was worthless,” she said.

Norwich Union has since returned the premiums the Jameses paid. Tony Jupp, senior actuary at Norwich Union, said checking everyone’s medical records would be impossible. “The Department of Health and doctors wouldn’t be able to cope and it would push up premiums,” he said. “Mr James answered no to all our questions, so there was no trigger for us to seek additional evidence.”

It is possible to take an insurer to court, but if you lose, you have to pay all the costs. Valerie Cuthbertson from Glasgow won a landmark case against Friends Provident over the non-payment of a critical-illness claim earlier this year. A Scottish judge criticised the insurer’s tactic of scouring Valerie’s medical notes as a means to avoid payment after the event.

Consumers have a powerful ally in the shape of the Law Commission, the body responsible for proposing changes to the law. The commission suggests that insurers should take greater care checking customers’ records at the application stage. It has also proposed limiting the ability of insurers to throw out claims on the basis of non-disclosure after a policy has run for three years, the system that is used in America.

For more on insurance visit www.timesonline.co.uk/insure

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