Mortgage loan insurance: beware of exclusion clauses


Every year, thousands of disputes oppose policyholders and insurers on the grounds, in particular, that certain exclusion clauses in borrower insurance lack precision. In its 2021 activity report, the Insurance Mediation points out the practice of too general a formulation depriving policyholders of the compensation to which they are entitled. This concerns non-objectivable diseases, repeated subjects of this imprecision.

Disputes on the rise in 2021

In 2021, Insurance Mediation (LMA) received a record number of referrals, around 20,000, compared to 17,350 in 2020 which already showed an increase of 18% over one year. In 47% of cases, solutions favorable to the insured were found. This influx most often bears witness to the difficulty that policyholders have in understand their insurance contract. It is true that insurance regulations are known for its complexity.

The main sources of disputes are:

As for the reasons for disputes, their origin is primarily due to the total or partial refusal of compensation (39%) and at complaint handling/contract management (36%).

The increase in referrals in 2021 is also explained by the entry into force of the 2019 justice modernization law which imposes a recourse to mediation or conciliation for disputes under €5,000, representing a significant proportion of files submitted to LMA. We must also recognize a better knowledge of the public of the mediation system. Not to mention that, since recourse to mediation is free, some users no longer hesitate to appeal to LMA, believing that their complaint could have been better handled by the broker or the insurer.

The volume of mediation requests could also soon increase with the establishment of a faster referral procedure : today, an insured can only turn to LMA after two negative responses from the insurer, including that of the claims department, or two months of silence from the insurer regarding his request.

Fuzzy disclaimers

In its report published on August 29, LMA warns that “it is not acceptable that clauses declared illegal (sometimes for a long time) by the Court of Cassation persist today in contracts”. The terms used in the general conditions are sometimes imprecisefor example in car or home insurance where the expression “lack of maintenance” of the vehicle or the dwelling allows the insurer to justify an exclusion of guarantee and so a denial of compensation.

The Insurance Code requires service providers to draw up clauses on the one hand in very apparent charactersAnd on the other hand formal and limited (article L.113-1 Insurance Code), qualities that are lacking in some borrower insurance contracts. The exclusion clauses should not be subject to interpretation.

LMA cites the example of a clause excluding psychic disordersincluding nervous breakdowns, ITT warranty (Temporary Total Incapacity for Work). Placed on sick leave for a depressive state, the insured, covered by a group mortgage insurance contract, was refused compensation. Jurisprudence has held that the expression “psychic disorders” without any precision does not allow the exclusion clause to be formal and limited: the insured cannot know very exactly the cases in which he may or may not be covered.

Another example of an imprecise clause is that concerning the back pathologies. A clause excluding “disabilities and invalidities (…) resulting from low back pain, (…) and other back pain” is not formal and limited as a whole if part of this clause does not is not (other back pain).

Psychological and psychiatric disorders, as well as back pathologies, are qualified in borrower insurance as non-objectifiable diseases and may be subject to exclusion redemption for a borrower insurance premium. Check out our borrower insurance guide to find out all about this essential cover for a home loan.

LMA also mentions in its report the implementation of the Lemoine law on June 1, 2022. The deletion of the health questionnaire for property loans of less than €200,000 per insured unit and maturing before the borrower turns 60, upsets market practice, which until then was based on the risk concept. There is no doubt that LMA will have to analyze the new exclusions or questions that insurers will ask and already ask about the behavior and lifestyle of candidates for borrower insurance.

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