Society of Lloyd's · DRN-6155744

The complaint Ms S complains that Society of Lloyd’s (SoL) unfairly limited the settlement offered on a home insurance claim, as it said she was underinsured. What happened The background to what happened here is well known to both parties, but I’ll briefly summarise the circumstances leading to the complaint, and this decision. Ms S insured a property with SoL. It was damaged by a leak and she made a claim. SoL accepted the claim was covered, but said that the total rebuilding cost of the property was more than had been declared. It therefore said that it only pay a proportionate amount in settlement of the claim. Ms complained to SoL and then our service. She said that she’d declared the correct amount when she originally took out the policy and had expected this to rise over time. Although SoL said its offer of settlement was reasonable, it acknowledged there had been delays in the handling of the claim, and offered £300 compensation for this. Our investigator thought SoL’s offer of compensation was reasonable. However, she thought it hadn’t acted fairly by limiting its settlement, as she didn’t believe Ms S to have been underinsured. She said SoL should be liable for the full settlement amount. Ms S accepted this but SoL disagreed. It maintained that the amount insured was insufficient. However, it said it had reconsidered the proportion it believed Ms S was liable for, and said it would reduce this from 20.9% to 6.9%. As no agreement could be reached, Ms S’ complaint has come to me to make a decision. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. My starting point here is that before I can assess whether the proportionate amount of the settlement SoL says Ms S should be liable for is reasonable, I need to decide whether it’s fair for SoL to have said she was underinsured. There’s no dispute that the policy terms and conditions say that in the event of a policyholder being underinsured, SoL may only pay part of the claim. SoL’s position is that the rebuilding cost stated in the policy documents for the period of insurance this claim occurred in was too low. It’s calculated the rebuilding cost as being £485,212, and says that amount should have been declared when the policy renewed. Ms S hasn’t provided any evidence to refute that calculation and so I accept that this amount should be considered as accurate. The rebuilding cost stated in the policy documents is £383,788. So, on the face of it, the rebuilding cost is less than the amount insured. That would mean Ms S is underinsured and

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so SoL could fairly apply the clause allowing it to make a proportionate settlement. What this complaint turns on, however, is the amount which was originally stated as the rebuilding cost when Ms S took out the policy in 2017 (the policy had been renewed each year since). That was £325,000. The sum insured of £383,788 at the time the claim was made was calculated by taking the original declared amount, with the addition of index-linked calculations since 2017. The policy says with regards to this: “Index Linking We will protect your buildings sum insured against inflation on a monthly basis in line with the House Rebuilding Cost Index, issued by the Royal Institute of Chartered Surveyors and you will be notified of the revised sum insured annually, when your policy is due for renewal. At each renewal a new premium will be calculated based on the new sum insured. We will not reduce your sum insured if the index should fall. Although you are protected against inflation, you must ensure your buildings sum insured is adequate.” Ms S says the amount given when the policy was taken out (£325,000) came from a valuation carried out when she applied for a mortgage the same year. We’ve been provided with that assessment and it confirms the “estimated minimum cost of reinstatement for insurance, approximately” as £324,000. I’m satisfied that this amount could reasonably be relied on as a rebuilding cost when the policy was taken out, around a month after that estimate. SoL accepted the cover on the basis that the rebuilding cost was £325,000. SoL’s argument is that documents sent to Ms S when the policy was due for renewal, and the policy terms and conditions, said she needed to check the amounts. The specific wording in the renewal documents referred to says: “It is important that at each renewal you review the adequacy of your sums insured. If you feel that your sum insured needs to be increased, please contact your broker.” In her renewal document, the sum insured was £383,788, which is what was subsequently included in the policy when it renewed. There’s no dispute Ms S didn’t amend the sum insured prior to renewal. It’s suggested that Ms S ought to have known that the rebuilding sum could now be inadequate, or in the alternative, that Ms S should, regardless of her knowledge or assumptions, have obtained a new assessment. I can’t agree with that position. While the documents refer to needing to check, I think Ms S could have reasonably made two critical assumptions: - That the amount declared in 2017 was accurate, as it was based on a mortgage application. - That the index linking set out in the policy had increased by a commensurate amount since then, with the amount remaining accurate and adequate. It seems that in concluding the sum insured was inadequate, SoL must take one of two positions: - The original sum insured of £325,000 was inadequate, or - The index-linking didn’t keep pace with the increase in the rebuilding cost.

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In either case, I’m satisfied that SoL would need to demonstrate that Ms S should have known, or had reason to know, this was the case. As I’ve said, I think it was fair for Ms S to rely on the rebuilding cost given in the mortgage valuation, which addresses the first point. The original sum insured of £325,00 was not an uniformed estimate, but rather based on a valuation provided by a third party when applying for a mortgage. If SoL believes the original sum insured to have been inadequate, then I’d expect it to demonstrate why it was unreasonable for Ms S to rely on the figure stated in the mortgage valuation. It hasn’t done so. The policy effectively says that the inclusion of the index-linking protects the sum insured, so as Ms S could reasonably conclude the original sum insured was adequate, she could also reasonably assume that the sum would remain adequate due to the index-linking. I can’t hold Ms S responsible if the formula used by SoL to protect the sum insured led to a shortfall. I think if SoL believes that by 2023 the sum insured was inadequate, then either it needed to recalculate the sum at renewal (and then reflect that in the premium charged) or direct Ms S to obtain a new assessment in 2023 as a condition of renewal. I can’t say it’s fair to accept a figure, state that this will be index-linked to protect the adequacy of the sum, but then say that a policyholder is at fault if that sum is inadequate, without providing any evidence as to why that is the case, outside of identifying the sum insured and actual reinstatement cost. The inclusion, or reference to, a policyholder being obliged to check the adequacy of the sum insured even though the insurer is index linking the amount over time, doesn’t change my opinion. I think it creates an unreasonable expectation on the policyholder to obtain new estimates in spite of the insurer indicating that the amount is protected against inflation by the index-linking. Where SoL has said it will protect the sum insured by use of index-linking, I think a reasonable policyholder would assume that there was no need to obtain a rebuilding cost at every renewal, provided they could be satisfied the original sum was accurate. As I’ve explained, this applies to Ms S’ circumstances. Therefore, I conclude that SoL can’t reasonably say Ms S was underinsured. It should accept the claim on the basis that the sum insured for rebuilding was adequate, and therefore be liable for the settlement amount in full. That means it should refund Ms S for the proportion of the claim costs she’s paid. It should also pay 8% simple interest per year on that amount from the date she paid to the date of settlement. This reflects that she’d otherwise have had the funds which could have earned interest or be used as she saw fit, and is in line with our approach to these situations. SoL offered Ms S £300 compensation as it recognised the handling of the claim should have been better. Our investigator thought this was a fair amount, and Ms S has agreed with this. For the sake of completeness, I think the £300 offered was reasonable. The main issue identified was that there was a six-week delay in a loss adjuster being appointed, causing an avoidable delay to the claim’s progression. For that length of delay, and the inconvenience caused to Ms S, I think £300 appropriately recognises the frustration she’d have experienced when the claim wasn’t progressing and so repairs and restoration to the property couldn’t take place. My final decision I uphold Ms S’ complaint. In order to put things right, Society of Lloyd’s must: - Reimburse Ms S for the costs she’s contributed to the repair costs, plus 8% simple interest per year on those amounts from the date she paid to the date of final

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settlement. Under the rules of the Financial Ombudsman Service, I’m required to ask Ms S to accept or reject my decision before 9 April 2026. Ben Williams Ombudsman

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