A reasonable approach to insuring your cat?

The FSA has taken RBS' insurance firms to task under the UTCCR for the terms of their pet insurance. RBS' wordings had said they would not pay "any costs that we do not consider reasonable or necessary".

The Unfair Terms in Consumer Contracts Regulations 1999, which unlike the Unfair Contract Terms Act do apply to insurance policies, do not apply to the main subject matter of the contract, that is sections of the policy which define the risk or liability, provided they are in plain and intelligible language. The FSA said that a policy providing cover for 'reasonable and necessary costs' was vague, and therefore not in plain and intelligible language. Even worse, this particular policy provided cover for costs which the insurer considers reasonable or necessary, which appeared to leave the terms of cover to the discretion of the insurer.

In discussion with the FSA, the RBS insurance firms have changed their wording to impose specific monetary limits on the costs they will pay.

There are many other insurance policies that provide cover for reasonable costs, for example reasonable legal costs or reasonable costs of taking steps to mitigate a potential claim. It is unclear whether any of those wordings are now open to attack by the FSA – in the case of legal costs for example a dispute as to whether or not they are reasonable could be determined by the SRA. Although there is not the problem of insurer's discretion, there continues to be the potential for dispute because the policyholder does not know when he buys the policy what level of service might be reasonable or unreasonable.

Because this decision was based on the UTCCR, it only applies to consumer insurance (that is policies not taken out for the purposes of the policyholder's trade, profession or business). But where policies are taken out by a small business ('micro enterprise') the FOS might be expected to take a similar approach even to commercial insurance.