Compensation for erroneous advice from an insurance company

A recent decision from the Norwegian Finance Complaints Board Transfer (FinKN 2023-91) has highlighted the responsibility of insurance companies when homebuyer insurance fails to provide adequate assistance to the customer. An insurance company was ordered to pay compensation for the customer's financial loss due to incorrect and inadequate advice from the insurance lawyer.

Background

The case involved a customer who had taken out homebuyer insurance with an insurance company in connection with a home purchase in 2016. When the customer discovered a defect in the home, he contacted HELP for assistance. However, the lawyer declined further assistance in the case, which later proved to be a misjudgment. When the customer's claim against the home seller became time-barred in the interim, he brought a claim against the insurance company for the loss he had incurred.

Majority Conclusion – Liability for Damages

The majority in the Finance Complaints Board ruled in the customer's favor and awarded him compensation. The majority found that the customer's defect claim against the seller would have succeeded if the claim had not become time-barred. The insurance company's refusal of further assistance was deemed negligently liable for damages. The majority particularly emphasized that the customer had not received sufficient information about the impending limitation rules when the insurance lawyer withdrew from the case. The information given about limitation was both sparse and in part misleading.

The advice from HELP's lawyer thus did not meet the requirements for adequate guidance according to good legal practice, and this constituted grounds for liability for compensation. The majority found a clear causal relationship between the inadequate legal assistance and the customer's financial loss in the form of a lost price reduction and compensation claim against the seller.

Minority's Opinion

A minority in the board disagreed that the customer was entitled to compensation, noting that there was no defect in the home. The minority believed that the area for exclusive usage rights in any case had no value impact on the home, so any failure in the information provided did not affect the purchase agreement.

The Compensation Amount

The compensation amount was discretionarily set by the majority at 400,000 NOK based on a hypothetical assessment of the price reduction the customer could have received from the seller. In addition, the customer was reimbursed for legal expenses in the preceding dispute with the insurance company of 50,000 NOK, as well as expert costs and litigation costs. The total compensation amount thus amounted to 470,000 NOK, plus interest on arrears.

The Lawyer's Comment

Lawyer Servet Yildiz Stêrk from Sterk Law Firm, who specializes in property law, is not surprised by the outcome of the case:

"The decision confirms the strict professional responsibility placed on insurance companies' lawyers when advising consumers. In particular, the lawyer has a significant responsibility to provide concrete and unambiguous guidance on complicated limitation rules. A general reference to the limitation rules is not sufficient," states Stêrk.

He also points out that the insurance terms in homebuyer insurance are often unclear and difficult for the customer to access. The rules on the insurance company's responsibility are often formulated as disclaimers.

"The judgment shows that the courts can set aside such liability limitations if the insurance company has not provided adequate assistance to the customer. It is important that insurance companies such as this now review their procedures for follow-up in cases where assistance is refused, so that the customer is able to protect their interests on their own," says Stêrk.

Conclusion

The decision in the Finance Complaints Board provides a principled clarification of the liability of insurance companies for damages in cases of inadequate assistance in homebuyer insurance cases. The judgment shows that there is little room to hide behind unclear disclaimers in the insurance terms if the legal assistance is objectively inadequate.

Consumer homebuyers should note that they are not entirely subject to the insurance company's assessments in such cases. In the event of an incorrect denial or inadequate guidance, there may be grounds to bring claims against the company for positive contractual interests, including price reductions, compensation, and costs. If you have experienced a denial of coverage under homebuyer insurance, you should contact a lawyer with expertise in the area to assess the possibility of bringing a claim against the insurance company.