You’ve paid your premiums faithfully, but when you finally need to make a claim, your insurer rejects it. Whether it’s home insurance, car insurance, travel insurance, or life cover, having a legitimate claim denied can feel like a betrayal—especially when you believe the rejection is unfair.
In the UK, you have legal options when insurers treat you unfairly. This guide explains how to challenge a rejected claim and potentially claim compensation.
How UK Insurance Regulation Differs from the US
Unlike the United States, the UK doesn’t have “bad faith” insurance laws that allow policyholders to sue insurers for punitive damages when claims are unfairly denied. In the US, insurers can face massive penalties for acting in bad faith.
However, UK policyholders are protected through:
- Financial Conduct Authority (FCA) – The regulator that sets conduct rules for insurers
- Financial Ombudsman Service (FOS) – An independent dispute resolution service
- Financial Services Compensation Scheme (FSCS) – Protection if an insurer fails
- Enterprise Act 2016 – Allows claims for damages caused by late payment
When Is a Claim Rejection “Unfair”?
An insurance claim may be unfairly rejected if:
- The policy wording is ambiguous and the insurer interprets it against you
- The insurer relies on technicalities rather than the substance of your claim
- You weren’t properly informed of exclusions when you bought the policy
- The insurer failed to investigate properly before rejecting
- The rejection contradicts what you were told by sales staff or advisers
- The insurer unreasonably delays handling your claim
- The settlement offered is unreasonably low compared to your actual loss
UK Case Example: FCA v Arch Insurance (COVID-19 Business Interruption)
In a landmark 2021 case, the FCA brought a test case against eight insurers over business interruption claims related to COVID-19 lockdowns. Many insurers had rejected claims from small businesses, arguing that pandemic closures weren’t covered.
The Supreme Court ruled largely in favour of policyholders, finding that insurers had wrongly interpreted policy wording. The decision affected an estimated 370,000 policyholders and led to insurers paying out billions in previously rejected claims.
Step 1: Complain to Your Insurer
Before escalating, you must first complain directly to your insurer:
- Put your complaint in writing – Email or letter, keeping copies
- Explain why you believe the rejection is unfair – Reference policy wording and your circumstances
- Ask for a full written explanation of the reasons for rejection
- Request a review by a senior complaints handler
The insurer has 8 weeks to respond with a “final response letter.” If they don’t respond, or you’re unhappy with their response, you can escalate.
Step 2: The Financial Ombudsman Service (FOS)
The Financial Ombudsman Service is a free, independent service that resolves disputes between consumers and financial firms. Key points:
- Free to use – No cost to you
- You must refer within 6 months of receiving your final response letter
- FOS can award compensation up to £430,000 (for complaints referred after 1 April 2024)
- Decisions are binding on the insurer if you accept them
- You’re not bound – If you reject the decision, you can still go to court
What the FOS Can Do
The FOS can order insurers to:
- Pay your claim in full or in part
- Pay compensation for distress and inconvenience caused
- Pay interest on delayed payments
- Cover costs you incurred due to their unfair treatment
FOS Decision-Making
The FOS decides cases based on what is “fair and reasonable in all the circumstances”—not just strict legal interpretation. This means they may find in your favour even if the insurer technically followed the policy wording, if the overall treatment was unfair.
Case Examples from FOS Decisions
Claim Rejected Without Proper Investigation
In one FOS decision, an insurer rejected a claim without first obtaining legal advice on a complex coverage issue. The Ombudsman found this was unfair—the insurer should not have rejected the claim without proper investigation. The insurer was ordered to reconsider the claim with appropriate legal input.
Compensation for Delay
In another case, while the claim rejection was ultimately upheld, the FOS found the insurer had caused unacceptable delay. The complainant was awarded £250 compensation for inconvenience on top of the £100 the insurer had originally offered.
Step 3: Enterprise Act 2016 – Damages for Late Payment
Since 2017, policyholders can claim damages if an insurer unreasonably delays paying a valid claim. Under the Enterprise Act 2016:
- Insurers must pay claims within a “reasonable time”
- If they don’t, you can claim damages for losses caused by the delay
- This might include additional costs, lost business, or interest
This is the closest UK equivalent to US “bad faith” claims, though it only applies to unreasonable delay, not to unfair rejection.
Step 4: Court Action
If the FOS can’t resolve your complaint, or if your claim exceeds their limits, you may need to take court action:
- Small Claims Court – For claims up to £10,000
- County Court – For larger claims
- Breach of contract – If the insurer failed to honour the policy terms
- Misrepresentation – If you were misled about coverage when buying the policy
Time Limits
- FOS complaint: Within 6 months of receiving the insurer’s final response
- Court action for breach of contract: 6 years from the date of the breach
- Enterprise Act damages: 6 years from when the loss was suffered
What Compensation Can You Get?
Depending on your route and circumstances:
- Payment of your original claim – The amount you were entitled to under the policy
- Interest – On delayed payments
- Consequential losses – Costs incurred because the claim wasn’t paid (e.g., borrowing costs, alternative accommodation)
- Distress and inconvenience – The FOS regularly awards £100-£500 for this, sometimes more in severe cases
Frequently Asked Questions
Can I sue my insurer for “bad faith” like in America?
Not in the same way. The UK doesn’t have a “bad faith” tort for insurance. However, you can claim through the FOS (free), claim damages for late payment under the Enterprise Act, or sue for breach of contract. The FOS route is usually more practical for most consumers.
What if my insurer has gone bust?
The Financial Services Compensation Scheme (FSCS) protects you. For insurance claims, FSCS will pay 100% of the claim if the insurer can’t pay.
Do I need a solicitor to complain to the FOS?
No. The FOS process is designed for individuals to use without legal representation. However, for complex or high-value claims, legal advice may be helpful.
What if the FOS decides against me?
You’re not bound by FOS decisions. If you reject their ruling, you can still take the matter to court—though the court isn’t obliged to follow the FOS’s reasoning.
How long does the FOS process take?
It varies. Straightforward cases may be resolved in a few months; complex cases can take over a year. The FOS has faced significant backlogs in recent years.
