10 february 2023, 13:36

Financial Ombudsman reveals unfair insurance sale practices in smartphone purchase

Financial Ombudsman Denis Novak has revealed unfair practices in connection with the sale of insurance when buying a smartphone. A consumer, having concluded a property insurance contract when purchasing a smartphone, was confident that he/she would receive compensation if it were stolen, but due to nuances in the documents, the insurance organization did not pay out the money.

A resident of St. Petersburg purchased a smartphone and at the same time took out a property insurance policy providing coverage for theft for 6,959 rubles with the sum insured of 52,712 rubles. A month and a half later, the consumer’s phone was stolen, and the law enforcement authorities opened a criminal case over the theft. The claimant, expecting to receive an insurance payment under the policy he had purchased, applied to the insurer, but the latter refused to make the payment.

The insurer refused on the following grounds. According to the insurer’s special terms and conditions, damage caused by theft is recognized as an insured event if criminal proceedings have been instituted for the theft.

However, another prerequisite for the recognition of the event as an insured event pursuant to the special terms and conditions of the insurance is that the theft was committed by burglary or damage to or loss of other property was detected. That is, for example, a bag has been cut or stolen, or the door to the room where the phone was located has been broken into. But if, for example, the phone was simply taken out of the pocket or taken from the table without any visible physical interference, then according to the rules of the insurance organization such damage cannot be recognized as an insured event. That is why the client was denied the payout.

However the Ombudsman, considering the claim and examining all the documents, determined that the consumer could not have been aware of such special terms of insurance at the time of signing the insurance contract as he was not properly informed about them at the time of signing the contract.

Article 943 of the Russian Civil Code stipulates that conditions contained in the insurance regulations which are not included in the text of the insurance contract (insurance policy) are binding on the policyholder only if the insurance policy expressly states that such conditions apply and they are written in the same document as the contract (insurance policy) or on the back of it or are attached to it. In the latter case, the delivery of the insurance regulations to the policyholder at the conclusion of the contract must be certified by a notation in the contract.

“In this case, the consumer signed an insurance contract under which the special insurance terms were not set out in a single document with the insurance contract, were not attached to the insurance contract, no one expressly informed the consumer of such insurance terms, and the consumer’s signature on the delivery of the special insurance terms was not in the contract. In deciding the occurrence of the insured event and payment of the indemnity, the insurer relied on the special insurance terms and conditions which were not applicable in this case, because they had not been agreed with the consumer. At the time of signing the insurance contract the consumer was guided by the terms and conditions of the insurance contract, according to which the insurance contract included the risk of theft, without specifying the additional criteria,” Denis Novak explained.

“Since the fact of occurrence of the insured event for theft risk has been proved by the documents submitted upon request, the insurance compensation has been recovered from the insurer in favour of the consumer of financial services,” Denis Novak added.

The Financial Ombudsman also stressed that when entering into an insurance contract it is advisable to read its terms and conditions carefully, and if the insurance contract refers to the application of certain terms or rules of insurance, one ought to clarify the terms of occurrence of insured events in accordance with such terms or rules. “Even if you have already signed the contract and paid the premium, you should read the insurance terms and conditions more carefully at home. If you are not satisfied with the insurance terms within 14 days – the so-called “cooling-off period” – you can cancel the insurance and get the premium paid back – minus the amount paid for the period during which the insurance was in force,” the Financial Ombudsman advised.

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