Settling home insurance claims

If an insurer has chosen to repair the damage, we often see complaints about the quality of repair work done or disagreements about the extent or method of repair the insurer has agreed to carry out.

In these cases, we’d expect you to consider that you’ve entered into a repair contract with the policyholder once repairs have started. This is important. If things go wrong – for example, the repair is more expensive than expected – you can’t turn back the clock and seek to settle the claim on another basis, for example, by paying cash. 

Rarely, we’ll decide that it’s fair for you to refuse to carry on with repairs. That usually happens if the customer has acted unreasonably and the relationship between you has irretrievably broken down.

In the uncommon event that a building is destroyed, the way to get the policyholder back to the position they were in before they put in a claim is called reinstatement. Guidance about repairs still applies.

Find out more about repairs following damage caused by subsidence and other types of ground movement.

Effective and lasting repair

When you choose to settle a claim by repair, we expect you to indemnify the customer by carrying out an effective and lasting repair.

We consider that a fair and reasonable approach, regardless of what the policy says or the cause of damage.

To be effective and lasting, the repair must:

• fully put right the damage
• put right the damage for an appropriate amount of time 

For example, basic decorations might be expected to last a few years; a rebuilt wall should last for decades.

In some cases, the only way to carry out an effective and lasting repair to the insured damage is to carry out work on damage that isn't insured. If that work isn’t carried out, it won’t be possible for the insured work to be effective and lasting – and that won’t indemnify the policyholder.

In this situation we think the insurer should carry out that uninsured work. Again, this doesn’t need to be written in the policy – we think it’s the fair approach to ensure that the customer is indemnified.

But we must be satisfied that the uninsured work is necessary for an effective and lasting repair to the insured work. Sometimes we’ll see uninsured work that’s been recommended as a precaution or to protect against the possibility of future damage.

We’ll have to decide if the evidence suggests the work is necessary or preferable. If we’re not satisfied it’s necessary, then it wouldn’t be fair to ask you to pay for damage which isn’t covered.

This is particularly relevant to underpinning in subsidence claims and tanking in flooding claims.

Read a case study about effective and lasting repair.

Damage that occurred before the start of the insured period

Most policies only cover damage that occurs within the insured period. Insurers are only obliged to repair damage that occurs after the start of the policy, unless that damage can’t be properly repaired without fixing previous damage. 

Choosing the repairer

You’ll probably have established relationships with building companies, with pre-agreed rates that tend to be below the market price. Pre-agreed rates mean there’s no need to spend time disputing the fair cost of work for a claim – the repairer can be appointed as soon as it’s been decided what work is required.

It can also help the policyholder by reducing the time needed to settle the claim and avoids the need to find a builder for each case.

If you appoint the repairer, you’re responsible for:

• the repairer (and any subcontractors the repairer might appoint)
• the time it takes the repairer to do the work

So if there’s a problem with the repairer’s work, you’re responsible for sorting it out.

If the customer wants to use their own builder we’d usually expect you to agree to that. But it’s unlikely you’ll want to appoint them directly and become responsible for them. In this case the customer is usually responsible for the repairer if things go wrong. But, we’d expect the insurer to make that clear to the customer so that they can make an informed choice about their options.

If we think you ‘controlled’ the repairer, then we might say you’re responsible for them even if you didn’t appoint them. We might say you controlled the repairer if you:

• negotiated with the repairer on the extent of the work
• negotiated with the repairer on the cost of work
• told the repairer to use certain methods or materials 

But if you simply agreed to pay the repairer’s bill, and had no other involvement with the repairer, then we’d usually say you weren’t responsible. We’ll look at the circumstances of each case carefully before deciding.

Who’s responsible when something goes wrong?

Who’s responsible depends on whether the repairs were carried out by:

• approved repairers appointed by you or your loss adjuster
• repairers appointed by the customer 

If you or your agents chose the repairers, then generally you’ll be responsible if something goes wrong with the repairs.

If the customer chose the repairer, we’ll consider whether you explained to them that they’d generally be liable if something went wrong.

But there are situations where you may still be responsible, even though the customer chose the repairer, for example:

• if you told the customer to get estimates and the loss adjuster helped the customer to do so
• if the repairer was ‘controlled’ by you or your agents, for example, if you asked the repairer to cut its costs or to use certain materials or parts
• if you or your agents inspected the repairs and certified them as satisfactory

But if you’d simply agreed to pay the repairer's bill, we’d probably consider that you hadn’t assumed control or responsibility for the repairs.

Often, if a policyholder has experienced a flood or fire, their belongings may have been damaged. Examples of the ways in which you can arrange to fix this damage include:

• cleaning clothes that have been damaged by water
• decontaminating smoke-damaged linen

You may have the items professionally cleaned as a way of restoring them back to the way they were before the fire. 

If there’s been a fire or a flood and lots of contents have been damaged, insurers will often list all the contents and categorise them according to what they think they can repair/clean and what they can’t.

You’ll usually try to repair or clean anything that can be economically repaired. But in some cases you might label items as beyond economic repair, also called BER.

Ideally the original items can be restored and then returned to the policyholder. Anything which can’t be repaired or cleaned can be replaced (or cash settled).

Sometimes, the customer may need to live somewhere else while the repairs are carried out. This could be the case when extensive repairs to a building are needed as a result of damage caused by something covered by the policy, for example, a fire.

Most buildings and contents insurance policies provide cover for alternative accommodation (also called AA). This is because they may not have access to their kitchen or bathroom or it may not be safe to live in.

How AA cover works

AA cover pays for the reasonable additional cost of temporarily rehousing the policyholder and members of their household when the home becomes uninhabitable because of the damage caused by something covered by the policy. 

When we say reasonable cost, we generally mean that would allow the policyholder and their family to temporarily stay in a property that:

• is a similar type of property to the insured one
• allows the policyholder and any family they have to continue their normal work, education and leisure schedules as easily and comfortably as possible

And we use ‘additional’ to mean costs above and beyond what a customer would usually pay if the claim hadn't arisen.

We need to look at the circumstances of every customer on a case-by-case basis and decide if we think it’s fair and reasonable to live in that property. But we’re likely to say that a home is uninhabitable if:

• it’s not suitable to live in from a health and safety perspective
• there’s no electricity or running water
• the flooring has been stripped out due to insurance-related works and the customer has young children
• there are no kitchen, bathroom or toilet facilities
• it’s unsafe to live in

We understand that what’s unsafe for one customer might not be unsafe for another. For example, a property might be unsuitable for an asthmatic customer if there’s lots of dust or damp around.

We understand customers may be inconvenienced by being in alternative accommodation. But if the repairs were completed within a reasonable time, we may decide that the insurer doesn’t have to pay any additional compensation for distress and inconvenience.

But if the repairs took longer than they should have done, or if the customer was placed in inappropriate accommodation, we’ll consider whether it’s appropriate to tell the insurer to pay any additional compensation for distress and inconvenience.

Case study: Repairs took nine months but alternative accommodation lease was for six

Andrew and Marcus and their children had to move out of their home while it was being repaired following a subsidence claim. They were told the repairs could take between six and 12 months to complete, so they rented a property on a six-month lease. The repairs took nine months to complete and Andrew and Marcus had to renew the lease on the rented property.

We didn’t tell the insurer to pay additional compensation for inconvenience because the couple had been made aware that the repairs might take longer than six months and there was no evidence of delays caused by the insurer's representatives.

Disturbance allowance

Sometimes when the customer chooses to stay at home when their property is uninhabitable or they are re-housed somewhere else, they may incur extra costs. In these situations you might agree to pay the customer a disturbance allowance.

A disturbance allowance is compensation for the reasonable extra costs a customer has incurred by choosing to remain in their home or the type of accommodation they’ve been re-housed in.

Any other losses, like inconvenience or disruption due to the claim shouldn’t be paid as disturbance allowance but as compensation for distress and inconvenience. We’ll carefully apply what we think is fair and reasonable. 

For example, a customer might spend more money on food because they’ve been placed in a hotel or B&B that doesn’t have storage or cooking facilities. So, while acknowledging that such costs aren’t covered under the insurance contract, we might think it’s fair for you to cover the reasonable additional costs they’ve incurred by eating out or buying ready meals. 

Policies don’t tend to say they cover these allowances. But it’s part of the costs associated with alternative accommodation – which is covered – and has become good industry practice. So we’d usually expect you to take this kind of allowance into account when settling claims in these circumstances

The types of costs usually included under a 'disturbance allowance' 

Typical reasonable additional expenses we might see are:

• extra food expenses
• laundry fees
• travel expenses
• rehousing of pets
• council tax

If disturbance allowance should be paid, the amount is usually the additional costs the customer can prove they’ve incurred. They’d need to provide evidence (for example, receipts) of their normal outgoings, going back at least a month before the claim, as well as those incurred throughout the claim.

For example, a customer might be able to show that their normal food bill is £100 a week, but that it increased to £200 a week while staying in alternative accommodation. They should be paid an extra £100 per week in that case.

However, we know that people don’t usually keep receipts for everyday expenses like shopping or laundry. If the customer doesn’t have evidence of how much reasonable additional expense they’ve paid, we’ll usually say it’s reasonable to pay the industry standard rates, £10 per day for each adult in the family and £5 per day for each child living at the insured property. You may have your own daily rate. As long as it's in the region of the standard rates, we won't ask you to change it. 

If the customer says they’ve spent more than their standard daily disturbance allowance, they’ll need to produce evidence.

How long to pay for AA 

We’d usually expect AA to be covered until the property becomes habitable or safe again, subject to the limit on the policy. In some cases, this could be part way through the repairs, but it’s common for all the repair work to be completed before the customer is asked to return home.

However sometimes, you may refuse to pay for AA, even if repair works haven’t finished or the property is still uninhabitable or unsafe if the limit under the policy has been reached.

We’ll always look at the customer’s individual circumstances when deciding whether a property is habitable or safe. For example, having access to washing and cooking facilities available, doesn’t mean it’s suitable for the customer. 

Once the property is deemed suitable to live in again, it wouldn’t be fair for you to continue paying AA costs.

If customers are worried about the dust and disruption from works, we’ll need to assess the impact on a case-by-case basis, taking into account the customer’s circumstances.

Sometimes repairs take longer to finish than the original estimate. We’ll take a decision on whether you should continue paying for AA. If the claim has simply taken longer than anticipated and you didn’t cause any undue delays, then we might decide that it’s fair for you to stop paying for AA once the limit under the policy has been reached.

But where we find you have caused unnecessary delays, we might decide that you should continue paying for AA beyond the policy limit.

We’ll also consider if you should pay compensation for any distress and inconvenience.

Sometimes, the type of repair or replacement you choose can cause further problems – for example, if the repairs are unsatisfactory or have taken too long.

Betterment 

Sometimes you may refuse to do some of the repair work because it would mean the customer would end up in a better position than they were in prior to the loss or damage. 

This would go beyond indemnifying them and gives them more than the policy strictly entitles them to. However, sometimes it’s the only fair solution.

Case study: Will rebuilt wall be better than the original?  

Mary’s 100 year-old wall is knocked over by a car. The builder, appointed by their insurer, says it’s best to rebuild walls with brick pillars to increase stability. But when the wall was built, that wasn’t the common view, so it didn’t have pillars.

The insurer might argue that if it adds the pillars the customer has a ‘better’ wall than the one which collapsed. However if the builder doesn’t add the pillars then the customer won’t have a wall considered stable enough to stand in the long-term, so it won’t be an effective and lasting repair. 

Before the damage, the customer had a wall which, by the standards when it was built, was considered stable. So that’s what they should have after the damage, too. We decided the fairest outcome was for the builder to reconstruct the wall with pillars.

Time taken to complete the repairs

If the repairs weren’t carried out within a reasonable time, we may tell you to pay compensation for any [distress or inconvenience] the customer has experienced because of the delay.

What’s ‘reasonable’ depends on the circumstances of the claim, including:

• the nature of the item needing repair
• how complicated the repairs were
• who was responsible for the delay – for example, if the delay was caused by a spare part being unavailable, but the repairer made reasonable efforts to get it we’re unlikely to say that the repairs took too long

If the scope of the repairs was established and you simply failed to arrange the repairs, or your chosen repairer didn’t attend, we’d be likely to say this wasn’t acceptable and that you’d failed your obligation to the policyholder.

Case study: Repair delays and repairer dispute cause disruption for family in alternative property 

Barney and Heather and their children had to move out of their home while it was being repaired following a subsidence claim. They were told the repairs would take about 12 months to complete and rented a property on a 12-month lease.

After 12 months, the repairs were nowhere near completion, following a dispute between the loss adjuster and the building contractors. Barney and Heather couldn’t renew the lease on their property and couldn’t find another rental property nearby.

The only suitable accommodation they could find was a property 20 miles away, which meant that they had to drive their children to school and they couldn’t take part in after-school and leisure activities. The repairs took another six months to complete.

They referred the dispute to us. Following our investigation, we told the insurer to reimburse the expenses that the couple had incurred and pay compensation for the inconvenience caused by the delays in repairing the property.

The quality of repairs

A customer may say that repairs by the builder you appointed were faulty or incomplete. This might happen when:

• you refuse to pay for damage you say occurred before the event that gave rise to the claim
• the customer says the repairer caused additional damage
• the customer says the repairs carried out weren’t satisfactory or fit for purpose

If we don’t think the repairs are effective and lasting, we’ll tell you to put the work right. We’ll look at the available evidence from:

• the customer
• you
• independent experts

We usually give greatest weight to reports from an independent expert.

The customer is entitled to have their item or property returned to the same condition it was in before the insured event that gave rise to the claim. If we decide that the repairer hasn’t done this, we usually say it should put things right.

If the repairer is unwilling or unable to do this, we may say the insurer should pay for the customer's own repairer to do the work.

If you offer to put it right, we usually think it’s reasonable to give you a chance to do so. But if the policyholder’s experience has been distressing, or you’ve had a chance and failed to put things right, we might say it’s unfair to expect the policyholder to persevere.

Where fixtures and fittings (such as kitchen units or bathroom fittings) need to be replaced as part of the repairs on a buildings claim, we’ll usually say that the customer is entitled to replacement products of the same quality as those that were damaged.

If the product has been specially designed, for example, a specialist bath for a particular medical condition, and an equivalent of the same quality is no longer available, we’ll expect you to act fairly and reasonably in settling the claim.

Case study: Customer refuses to use insurer’s repairer in water damage case 

Cristina’s dishwasher was damaged after a water leak in her kitchen. Following inspection, it was decided that it was worth repairing the appliance. It was sent to a repairer appointed by the insurer. But when the dishwasher was re-installed, it didn't work. It was sent back to the repairer who worked on it again, then reinstalled it in Cristina’s kitchen. 

The dishwasher still didn’t work, and so Cristina complained to her insurer. She wanted her own repairer to fix the appliance. The insurer wouldn’t agree and the dispute was referred to us. 

On investigation, we were satisfied that the repairs carried out by the insurer's approved repairer weren’t carried out properly and that Cristina had given them ample opportunity to put things right. We said that the insurer should pay for her repairer to carry out the work and pay her compensation for the avoidable inconvenience caused.

Replacing something lost or damaged usually only applies to contents claims because buildings, or parts of buildings, are repaired. But there are times when an insurer will replace part of the buildings, for example, a front door that’s been smashed in.

We often see complaints because the customer doesn’t think the replacement the insurer has offered is as good as the item that was lost or damaged.

An exact match

When you choose to settle a claim by replacement, we expect you to provide the customer with an item that’s the same as what’s been lost or damaged – ideally, an exact match.

Sometimes this just isn’t possible, for example because the items aren’t made any more or the manufacturer has gone out of business. That isn’t the insurer’s or the customer’s fault, so you’ll need to compromise.

A reasonable match

We wouldn’t usually expect you to exhaust every option to find an exact match. We also wouldn’t expect a customer to accept something inferior, as that wouldn’t indemnify them.

If you can’t source an exact match, we think the fairest solution is for you to offer the closest equivalent, as long as it’s broadly as good or better. What’s reasonable depends on:

• what's important to the customer
• what's available to the insurer

If the customer insisted on an exact match and found one available online, you’re not required to replace the item as you can’t be sure of the item’s quality. In this case, you could choose to offer the customer the cash equivalent of the item and allow the customer to use that money as they wish.

New for old

Most policies will say they replace damaged items ‘new for old’. That means a customer claiming for something that’s 10 years old would be entitled to a new one as a replacement.

You can settle the claim with a cash payment whether or not something can be repaired or replaced. If you choose to do this, the amount should reflect the cost to the customer of getting a repair done or replacing an item. 

The amount should also be enough to put them back in the position they were in before the loss or damage.

You may decide to pay the customer cash to settle the claim and allow the customer to make their own agreements for repair or replacement. The settlement amount might be what you would have paid for the repair or replacement. This could be a lower amount than the amount the customer would pay by making their own arrangements if you have an arrangement allowing you to get things repaired or replaced for less than market rates.

But if the cash offer reflects the cost to you, that won’t indemnify the customer. This is because they won’t be able to get the repairs done for that amount. So if you're choosing to settle by cash, we expect you to take into account the cost to the consumer. 

What if you've chosen to repair or replace an item but the consumer wants cash?

If you've offered something that we consider indemnifies the customer, we'll be satisfied you can settle the claim fairly without the consumer losing out.

If the customer insists on a cash settlement, you can’t force a repair or replacement on them. So you must pay cash to settle the claim. But you’re only required to pay the customer the cost to you of the repair or replacement you were offering to do, which might be less than the cost to the customer.

If that’s not enough for the customer to get repairs or a replacement, that’s fair, because you gave the customer the chance to be indemnified but the customer didn’t take it.

But we must be satisfied that your offer to repair or replace was fair to begin with. If it wasn't, then you haven’t actually offered to indemnify the customer and we’d consider your cash settlement offer unfair. You may mention the costs of using your suppliers to explain cash settlement figures, which is sometimes called the ‘limit of liability’.

Find out more about paying cash to cover the cost of repair or replacement:

Vouchers instead of cash

Sometimes instead of paying with cash, you can offer the customer a voucher instead. The customer can use the voucher only with certain companies to get whatever items they want.

The voucher should be for a high enough value for the customer to get a reasonably matched replacement for the item that's been lost or damaged. The companies that can be used should be able to provide a reasonable match. If the value of the voucher or the companies where the voucher can be used doesn’t provide a reasonable match, then the voucher isn’t a fair settlement. We often see vouchers used in jewellery claims.

How vouchers work

Insurers use vouchers because they get a discounted price from the supplier. For example, it may cost them around £60 to give the customer a £100 voucher. If £100 is enough to indemnify the customer and the damaged item can be replaced by the company honouring the voucher, then that’s reasonable. The customer gets indemnified and it helps the insurer keep costs down. But if the customer wants a cash settlement, it’ll be the cost to the insurer of the voucher, which might be much less than the voucher value.  

Paying VAT on a cash settlement

When you settle a claim by paying cash, a dispute can sometimes arise about whether you should include VAT.

We often see insurers pay the amount without VAT, then tell customers that if they end up paying VAT on the work, they can go back to the insurer to get it paid.

Most policies say you’ll need to base cash settlements on the cost of using your own supplier. Some customers have argued that if the insurer’s supplier would’ve charged VAT, then the VAT amount should be included in the settlement.

If a business charges a customer VAT, the business must pay the VAT they have received to HMRC, so the VAT isn’t part of the cost of the work, it’s in addition to the cost of the work. 

When you settle a claim by cash, it’s up to the customer what they do with that money. If they get the work done for a lower cost than the cash settlement figure, the VAT amount is less too. Often at the time the claim is being settled, it’s not known what the customer intends to do with the money or how much VAT that might generate.

That’s why we usually think it’s fair for you not to include VAT in the settlement. As far as you know at the point you’re making the payment, the settlement amount is enough to get the insured work done and indemnify the customer. We’d usually expect you to pay the VAT added on to any insured work once the customer has shown they’ve paid it though.

There are cases when the customer is clear on what they intend to do with the money and how much VAT that will generate. For example, they may have a detailed estimate for the work from a nationwide contractor that certainly charges VAT. In this situation, we’re likely to say you should include VAT in the settlement.