Revealed: the fatal 'flaws' of life cover

A life insurance claim that has been rejected on the grounds of 'non-disclosure' highlights the danger of arranging cover by telephone or on the internet, says a lawyer representing the policyholder's widow.

Sarah Callery has been forced to sell her home and move to a cheaper property with her two children after Legal & General refused to pay out on her husband's £85,000 life insurance. The insurer claims the couple did not reveal that Mark Callery had a mole removed before they applied for the policy.

Sarah and Mark Callery took out new insurance through Barclays when remortgaging in June 2003. Sarah, a Barclays bank clerk at the time, was pregnant with their second child and the couple decided to stabilise their finances by taking out a fixed-rate loan through Barclays Direct Mortgage. The couple already had sufficient life insurance to cover the mortgage, but a 'mortgage specialist' from BDM calculated that the Callerys could save money by switching to a Legal & General policy.

Sarah filled in the application over the phone, and says that when she was asked whether her husband had ever had consultation or treatment for cancer, tumour, growth or lump, she told the mortgage specialist that Mark had had a mole removed two years before. 'The woman asked me to wait, put down the phone for a while, then came back and said that was all right,' says Sarah.

The electronic application was then forwarded to Legal & General, which claims it sent a paper copy to the Callerys for them to check, along with a medical declaration asking for permission to get any relevant information from the Callerys' doctor.

However, Sarah says the couple only received the medical declaration and a form for confirming the accuracy of the information provided over the phone. They simply signed the forms and returned them to Legal & General. Had the couple seen the application form, they would have realised that the Barclays mortgage specialist had entered the answer 'No' as to whether Mark had ever had any treatment for cancer on the application.

A few months later, Mark was diagnosed with skin cancer, which quickly spread to his organs. Sarah gave up work to look after him but he died within six months. She was left with two young sons, no job and an £85,000 mortgage. Then to her horror, Legal & General refused to pay out on Mark's insurance policy because there was no record of his mole removal on the application.

Legal & General disputes Sarah's claim that the couple were not sent a copy of the application form. But Sarah's solicitor, Michael Vine, a lawyer based in Elstree, Hertfordshire who specialises in insurance non-payout cases, says: 'The first time Sarah says she saw the completed application was after her husband had died and Legal & General were contesting the claim.'

He says this is supported by the fact that whoever filled in the form muddled up Sarah and Mark's heights, weights and alcohol consumption - a mistake that Sarah would have spotted immediately had she seen the form earlier. However, Vine believes that even if the couple had seen the filled-in form, they would have accepted the mortgage specialist's judgment in not including details of Mark's treatment.

Vine says: 'Sarah has been caught between these two giant organisations, neither wishing to accept responsibility.'

In a letter to Vine, Legal & General customer relations consultant Oliver Ferreira writes: 'I appreciate that incorrect information may have been given to the clients by Barclays Direct Mortgage when the policy was sold. However, Mr Callery was given the chance to review the information that the Barclays agent submitted to Legal & General. Whether or not his decision to sign the declaration was based upon the advice he received is, again, an issue that will need to be investigated by Barclays.'

Unfortunately, Barclays did not record telephone calls at that time, and the company says its mortgage specialist cannot remember the conversation. But in another letter, a Barclays customer relations manager wrote: 'There are no incentives for a mortgage specialist to do anything other than accurately record the answers. Each client is given the opportunity to correct any mistakes upon receiving the "Q&A" document sent by L&G for verification. However, your claim that Sarah and Mark did not receive the Q&A document until a complaint was raised is entirely a matter for L&G to answer.'

Sarah has now taken her case to the financial ombudsman. The ombudsman cannot comment on individual cases before publishing a conclusion, but a spokesman for his office says: 'In an ideal world both parties would have complete records of all the relevant information they want us to consider. However, this is often not going to be the case, and where the consumer's and firm's recollection of a conversation differ and there is no evidence such as a call or a copy of the statement of facts then we have to decide what is most likely to have happened. If the customer gives a credible account of events, we may find it more likely than the insurer's version.

'Insurance disputes about medical non-disclosure can be some of the most complex and emotive complaints we are asked to consider.

'And even if we are satisfied that a consumer did not "disclose" a material fact, we still need to consider the reasons why the consumer did not disclose all the relevant information.'

Sarah has moved to a cheaper property where she lives close to her mother. She says: 'I feel really, really sad about this. All Mark ever worried about for the six months that he was ill was how me and the children were going to manage.'