Insurance invalid after fire due to family member?

by Readers Question

16:29 PM, 15th May 2019
About 2 months ago

Insurance invalid after fire due to family member?

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Insurance invalid after fire due to family member?

I have a buy to let mortgage and landlords insurance and when I initially took out the mortgage I did not intend to let to a family member,

I have since let to my wife’s sister and the property has had a major fire, it is in the hands of the insurance loss adjuster.

Yesterday after doing background checks they asked if we are related to tenant, of course we answered yes, to which they replied stating you can’t let a buy to let property to a family member.

I am now very concerned that the insurance company will invalidate the insurance contract leaving me with a £100,000 bill.

The insurance contract does not state anywhere in the policy wording that I can’t rent to family members,

Could they cancel the contract due to the mortgage being incorrect?

Thanks

Steven



Comments

Jason McClean

16:59 PM, 15th May 2019
About 2 months ago

Hi Steven

Without exact details, there is only so much I can say about this.

It really comes down to whether you meet the conditions for the landlord insurance. Do you have an AST in place? Have you disclosed the tenant type correctly? Did the insurer ask whether the tenants were friends or family?

I'd suggest going through your statement of fact and checking that everything is answered correctly. If it has been answered correctly, then you shouldn't have any worries about disclosure leading to the possible no claim decision.

However, there are many issues that the insurer will look into, with a fine tooth comb, to ensure that all in order and the claim is legitimate.

Dig out your statement of fact and read through it, that's the best thing you can do now to reassure yourself. Or alternatively, make the claim and the insurer will come back with any queries or next steps they need - either way you will end up doing this anyway to progress the claim and at least get an answer/closure/progression.

Hope this helps a little and if we can help any further, do give us a call on 01832-735388.

Best

Jason

Ian Narbeth

17:00 PM, 15th May 2019
About 2 months ago

Hi Steven
The answer may be that you may have breached a term of the policy. You need to check the policy conditions. I suggest you appoint your own loss assessor to act for you. The assessor can review the policy and advise.

Your mortgage company may be able to assist as they will be prejudiced if the policy is invalidated. Speak to them and see if they will help. If the fire was nothing to do with your wife's sister, the insurers may be more amenable to a payout but you need professional assistance to face up to the insurers

Steven Varian

17:28 PM, 15th May 2019
About 2 months ago

Reply to the comment left by Jason McClean at 15/05/2019 - 16:59
Hi Jason,
Thanks for the reply, I do have an AST in place and have read through the statement of facts which makes no mention of who i can or cant let the property to.
i got a call from my loss assessor saying the claim had been accepted in principle, it was at that point they asked if the tenant and my wife are related.

After this i read the lending criteria of the mortgage and it states they will not offer a Buy to let mortgage if it will be let to family, it was not our intention to let to family when we initially took out the mortgage.
my worry is if the insurance company cancel the landlords insurance based on the mortgage being invalid

Steven Varian

17:38 PM, 15th May 2019
About 2 months ago

Reply to the comment left by Ian Narbeth at 15/05/2019 - 17:00
Good afternoon Ian,
when you say i may have breached the terms of the policy, are you refering to the mortgage or insurance policy,
i can confirm that the:
- mortgage policy states they wont give a buy to let on the basis that it will be let to a family member,
-the insurance policy makes no mention of who i can or cant let the property to,

When you say the mortgage company will be prejudiced if the policy is invalidated, do you mean that if the insurance company refuse the claim, the value of the asset (property) the mortgage company lent on will be greatly reduced, so they are more likely to assist me than call in the loan.
Thanks

Jason McClean

8:57 AM, 16th May 2019
About 2 months ago

Reply to the comment left by Steven Varian at 15/05/2019 - 17:28
Hi Steven

It is good news if your statement of fact is correct. That is what the offer of insurance is based upon and as long as you comply, then you are in the best possible position. There may be other terms in the policy wording relating to family and friends, so check that as well to be sure.

The best policy is to be completely honest with the claims team. I do hope it works out for you.

Your mortgage is a different affair that I cannot comment on, I'm afraid.

Best

Jason

Rob Crawford

8:59 AM, 16th May 2019
About 2 months ago

An assumption made by insurers is that if a property is let to a family member then the tenancy arrangement could be less formal. Credit & ref checks may not be conducted, the tenancy agreement may not be in writing or routine condition checks (including fire detector checks) may not be carried out. This increases insurance risk. The policy may not say you can't let to family but it may say checks an AST and routine checks etc are required. If you have evidence of compliance, your claim should go through. The mortgage issue is unrelated. Even so, some mortgage lenders do accept family members.

Ian Narbeth

9:41 AM, 16th May 2019
About 2 months ago

Reply to the comment left by Steven Varian at 15/05/2019 - 17:38Hi Steven
I was referring to the insurance policy. Now, if as you say there is no restriction in the policy about letting to family members, the insurers should not be able to avoid the claim on that ground. A loss assessor or a solicitor experienced in insurance law could check the policy carefully (they are usually not easy reading) to help you and also find out if there is any other reason insurers are trying to avoid liability.
You indicate that you are in breach of the mortgage terms so it's probably not a good idea to advise the lender of the problem but you ought to rectify the situation and either get a different mortgage or I am afraid your sister-in-law will have to leave if you want to keep on the right side of the mortgagee.
By the security being prejudiced, I meant that mortgagees are concerned that their borrowers will not have the resources to repair/rebuild after insured damage if the policy does not pay out. In many cases the lender has paid more of the purchase price than the borrower and may have more "equity" in the property than the borrower does. Some insurance policies have mortgagee protection clauses so that the insurers still pay out even if the insured (you) has done or omitted to do something and the policy would otherwise be voidable.

Seething Landlord

12:52 PM, 16th May 2019
About 2 months ago

The law surrounding insurance contracts, particularly with regard to disclosure, materiality of facts and breach of policy terms is hideously complex and you may well need to seek professional advice if insurers attempt to avoid the claim. In the meantime I would advocate assuming that the claim will be accepted - should they decide to repudiate they will need to specify on what grounds and you can then focus your attention on a known issue rather than trying to anticipate problems that may never arise.

Ian Simpson

10:45 AM, 18th May 2019
About 2 months ago

We had a fire about a year ago. Caused by some stupid tenant having a campfire in his room. (Now in jail)

The insurers tried every trick in the book to wriggle out of the circa £150,000 payout. These included picking holes in the definition of a “Bedsit” , and trying to say we were under-insured (Happily my bank had insisted ion revaluations only a year previously and we were actually OVER insured... ) Provision of those documents to the loss adjuster soon shut them up.

They eventually accepted liability but it took seven long and worrying weeks while they tried everything to wriggle out.

I suspect this is standard operating policy with most insurers, as they try to limit their losses any way they can.

HAppily, one year on, we have finished the rebuild and have re-let four of the seven units. The insurers (through our Loss assessor) are continuing to pay lost rent until such time as we re-fill all the rooms....

I am sure you will get sorted, but insurers move as slowly as a slug with a disability on a slowing-down course.

Good luck with it!!


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