ARAG Legal Expenses Insurance Company Limited · DRN-6185787

The complaint Mr M (a director of S, a limited company) complains on S’ behalf that ARAG Legal Expenses Insurance Company Limited (ARAG) unfairly declined a claim that was made on a commercial legal expenses insurance policy. What happened S holds a commercial insurance policy to provide cover against a number of risks. This includes legal expenses insurance cover provided by ARAG. Mr M contacted ARAG to make a claim on the policy for breach of contract against a third party. The details of that claim aren’t directly relevant to my decision. ARAG declined cover for the claim, referring to an exclusion in the policy which said claims made within 90 days of the policy starting for contracts entered into before cover started weren’t covered. Mr M, on behalf of S, complained to ARAG who rejected the complaint. He referred the complaint to our service and our investigator concluded ARAG’s decision to decline cover was fair. Mr M didn’t accept this and asked for an ombudsman’s decision. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Insurers have a duty to handle claims promptly and effectively, and they shouldn’t decline claims unfairly. It’s accepted S’ claim falls within the section of cover providing cover for contract disputes. Within that section, the exclusion which ARAG seeks to rely on when declining S’ claim says there’s no cover for: “Any dispute arising from an agreement entered into prior to the start of this section if the date of occurrence is within the first 90 days of the start of this section, unless equivalent legal expenses insurance was in force immediately before.” As this is an exclusion from cover, the onus is on ARAG to show that it reasonably applies to the circumstances of S’ claim. For the purposes of this claim, the date of occurrence is defined as “the date of the event that leads to a claim. If there is more than one event arising at different times from the same originating cause, the date of occurrence is the date of the first of these events. This is the date that the event happened, which may be before the date you or an insured person first became aware of it.” Neither party disputes here that the event that led to the claim would be the alleged breach of contract by the third party.

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As the policy condition relates to an exclusion for claims made within 90 days of policy cover starting, it’s unsurprising that there are a number of dates here which are relevant to the claim and significant in considering whether ARAG has acted reasonably: • 25 October 2024 – This was the date S entered into the contract with the third party. An invoice has been supplied from that date. • 20 December 2024 – This was the date the policy cover started. The policy schedule confirms this. • 10 January 2025 – This was the date when S alleges the third party breached the contract. I accept this date based on Mr M’s submissions to ARAG and our service that the third party failed to deliver required items on that date to the required standard. What can be seen from this is that two critical facts can’t be disputed by either party: • S entered into the contract with the third party before the policy cover started. • The alleged breach of contract occurred within 90 days of the policy cover starting. So, on the face of it, the policy exclusion clearly applies to these circumstances. S entered into the contract before the policy cover started and then made a claim for a breach of that contract which had occurred within 90 days of the cover starting – that’s clearly excluded by the policy condition. Mr M makes a number of arguments about why it’s unfair for ARAG to rely on the exclusion. I don’t intend to address every point that has been made, but rather outline why I think it is fair for ARAG to decline the claim based on the exclusion. I have carefully considered the points made by Mr M on behalf of S, but ultimately I think the condition is suitably clear and can fairly be relied on. I think the meaning of the condition is clear, fair and not misleading – where a contract has been entered into before the policy cover starts, there’s no cover for any claim which arises from an event which occurs within 90 days of the cover starting unless there was similar cover in place previously. I also don’t think this condition is vague or ambiguous. It’s written plainly and there’s no obvious ambiguity arising from its application. Conditions which restrict cover in this way are common in legal expenses insurance, and generally we wouldn’t seek to restrict the exclusions an insurer puts into its cover. Those are, ultimately, commercial decisions around the level of risk insurers are willing to assume. In this case, ARAG has concluded that it doesn’t wish to provide cover for claims which arise from a contract entered into before the policy cover commences within 90 days of the cover starting. I’m also satisfied that the exclusion, given the extent to which it restricts cover and common nature across these kinds of policies, is given suitable prominence within the policy terms and conditions. As I’ve said above, this isn’t a particularly unusual exclusion and as such I don’t think it needed to be specifically highlighted in the policy documents beyond the level it has been. I understand Mr M’s point that this exclusion effectively reduces the period of cover by 90 days. I can’t agree with that. The exclusion limits cover (where the policyholder didn’t previously hold similar cover) for a period of time to a claim relating to a contract entered into before the cover started. That would, in the context of the level of cover provided across the various sections of the policy, capture a small number of claims. Unfortunately, S’ claim here is one of those.

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Many of Mr M’s points about why we should uphold the complaint and require ARAG to reconsider the claim are linked to his perception that we’ve previously upheld complaints where insurers have sought to exclude cover because of disputes or events that occurred before the policy cover started. He observes that the intention of such conditions is to exclude from cover claims where a policyholder knew, or should have known, that a claim could arise before they took out cover. I acknowledge that the policy cover was purchased before the policy was entered into. In submissions to ARAG, Mr M said the policy was purchased on 6 October 2024, but in recent correspondence with our service the purchase date was given as 6 November 2024. The exact date is of limited relevance to my decision here, as the important date for determining cover is the start date of the policy. That’s confirmed by all of the policy documents I’ve seen, and all of the submissions from Mr M, as being 20 December 2024. The relevant element is when the policy cover started, not when the policy was purchased. It isn’t for me to say why the cover start date was delayed after the cover was purchased, but evidently a conscious decision was made to do so. In doing so, there’s an assumption of risk on the part of the policyholder – they accept that the cover under the policy hasn’t started, and the relevant policy conditions will continue to apply, but have the benefit of the policy cover being in place for the period they want. I don’t think it’s reasonable to say that a condition which specifically refers to the start date of cover should be discounted because a choice was made to delay the cover start date. I’ve also considered the previous decisions from our service Mr M has identified. My role here is to consider the specific circumstances of S’ claim and complaint, and how the specific policy terms and conditions apply to that. An important distinction with many of the decisions Mr M points to is that in those the date of the event giving rise to the claim was before policy cover started. In this case, the issue is that the contract was entered into before the cover start date, with the event date being after cover started. In light of my findings that the policy condition is clear within the terms and conditions, I think it’s therefore reasonable to say that a policyholder who purchases cover but delays the start date of cover has been suitably warned that there’s a limitation on cover for any contracts entered into in that period. In any case, each of the cases referred to by Mr M will have been about a specific policy condition and we will have considered the fairness of that condition in the context of the individual circumstances of the complaint. That’s what I’ve done here and I’ve concluded that the exclusion does apply to S’ claim, and that it was fair for ARAG to rely on it and decline cover. I know this will come as a disappointment to Mr M, but I’m satisfied ARAG acted reasonably. My final decision I don’t uphold S’ complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask S to accept or reject my decision before 27 April 2026. Ben Williams Ombudsman

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