Marshmallow Insurance Limited · DRN-6290623

The complaint Mr D complains that Marshmallow Insurance Limited (Marshmallow) avoided his car insurance policy (treated it like it never existed) and refused to pay his claim. What happened Mr D purchased a car insurance policy with Marshmallow online. When Mr D’s car was stolen, he contacted Marshmallow to make a claim. After reporting the claim and confirming policy details with Mr D, Marshmallow said Mr D had answered questions they’d asked about his use of the car incorrectly. And Marshmallow considered this to be a careless qualifying misrepresentation, which they said entitled them to avoid the policy and to decline the claim. Unhappy with the actions taken by Marshmallow, Mr D brought a complaint to the Financial Ombudsman Service. One of our investigators looked into things. He said he was satisfied Marshmallow had fairly avoided the policy as Mr D travelled to multiple places of work, so he said Mr D hadn’t told Marshmallow the correct usage of his vehicle. But the investigator said that under the relevant remedies available to Marshmallow in cases of misrepresentation, they should refund the premiums paid with 8% interest added, after deducting a voidance fee. Mr D didn’t agree and asked for a final decision from an ombudsman. I was minded to reach a different outcome to our investigator, so I issued a provisional decision to give both parties the opportunity to comment on my initial findings before I reached my final decision. What I provisionally decided – and why In my provisional decision, I said: “I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having done so, I’m minded to reach a different outcome to our investigator. Therefore, I’m issuing a provisional decision to give both parties the opportunity to comment on my initial findings, before I reach my final decision. Before I consider the actions taken by Marshmallow in relation to Mr D’s policy and claim, I note that when the case first came to the Financial Ombudsman Service, in Marshmallow’s submission to this service, they said they’d recognised they may have caused concern by asking for the remaining premiums from Mr D after the policy had been avoided. And they made an offer of £100 compensation for this. It appears our investigator missed this offer from Marshmallow, as it wasn’t relayed to Mr D by him. I’m assuming that Marshmallow is still looking to make this offer. So, if my final

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decision remains the same as my provisional decision, I intend on including this within my direction. The relevant law in this case is The Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA). This requires consumers to take reasonable care not to make a misrepresentation when taking out a consumer insurance contract (a policy). The standard of care is that of a reasonable consumer. And if a consumer fails to do this, the insurer has certain remedies provided the misrepresentation is - what CIDRA describes as - a qualifying misrepresentation. For it to be a qualifying misrepresentation the insurer has to show it would have offered the policy on different terms or not at all if the consumer hadn’t made the misrepresentation. CIDRA sets out a number of considerations for deciding whether the consumer failed to take reasonable care. And the remedy available to the insurer under CIDRA depends on whether the qualifying misrepresentation was deliberate or reckless, or careless. Marshmallow says Mr D failed to take reasonable care not to make a misrepresentation when he told them about how he’d be using his vehicle. When taking out the policy, Mr D said his usage of his vehicle was Social Domestic & Pleasure including Commuting (SDPC). Marshmallow has referred to Mr D’s insurance certificate which says (my emphasis): “The policy holder and any named drivers are covered to drive for social, domestic and pleasure purposes. This cover also includes commuting to and from a fixed place of work. Excluding: Use for any business purposes including goods-carrying, for hiring, commercial travelling, racing, pacemaking, speed testing, competitions, rallies, trials or use for any purpose in connection with the Motor Trade.” And Marshmallow says Mr D hasn’t been using his vehicle in this way. Marshmallow say this because when the claim was first made, Mr D was asked during the claim notification call: “You said that you use your vehicle sometimes for work purposes. Do you drive to one location, or do you drive to multiple different locations?” And he replied: “Multiple”

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And in follow on emails Mr D was asked: “Please confirm whether you drive to one fixed place of work (like a store of office), or to multiple places of work in your vehicle (like visiting different homes).” And he responded (my emphasis): “I use my vehicle for commuting and social. Travelling to multiple locations. Visiting family and friends. Places of work different sites. I keep my work clothes and tools inside of the vehicle. Hard hat, hi vis vest, wire nips, tape measure, boat level, 19mm spanner tool belt.” Marshmallow subsequently avoided the policy as they say Mr D was using his vehicle to travel to multiple work sites, alongside carrying tools. Marshmallow said this isn’t cover they offer and they have therefore avoided the policy. Firstly, whilst Marshmallow has said that they wouldn’t provide cover where carrying tools, I’m not persuaded that this is supported with the information I’ve seen. From all the information provided, my interpretation is that cover isn’t provided for the tools themselves, rather than not offering a policy at all when tools are being carried. I say this because the underwriting guide doesn’t specifically say where carrying tools a policy can’t be offered at all. And the full policy terms say: “What is Not covered These sections of your insurance policy do not cover, and we will not be liable for, the following: • loss of or damage to the contents of the insured vehicle, including but not limited to, personal belongings, telephones, television equipment, two way radio transmitters or receivers or money, or goods, tools or samples carried in connection with any trade or business. Please refer to Section 7 for personal belongings cover.” And: “What is NOT covered Personal belongings cover does not apply to: • goods or samples, tools or equipment connected with any trade or business” So, I think this shows that where tools are being carried, there isn’t cover for loss of damage to the tools themselves, rather than a policy can’t be offered in the first place. And there is no question about carrying tools in the sales journey and this not being acceptable to Marshmallow, or where usage of the vehicle is chosen by the policyholder that indicates this isn’t something that can be covered. Therefore, I don’t think this can be relied on to avoid the policy in isolation, taking into account this wasn’t something asked about, and the policy terms don’t indicate this is the case. But Marshmallow has said they also wouldn’t have provided cover as Mr D was using his vehicle to travel to multiple sites too.

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Since the policy has been avoided, Mr D has said Marshmallow have misinterpreted things, as he wasn’t using his vehicle in this way. Instead, Mr D has told this service that he normally commutes using public transport and doesn’t use his vehicle to commute. Or at times, if he isn’t working locally or able to use public transport, he drives to his supervisor’s house, leaves his car there, and then a work van is used. And he said the tools were only in his vehicle because he was due to drive to his supervisor’s house to leave his car there to then travel on in a work van. So, Mr D maintains he didn’t use his car for travelling to various work sites, he also provided something from his employer which he says supports this. However, where information is contradictory, I need to decide, on balance, what I think is most likely. I can’t ignore the fact that Mr D, in calls and emails, when asked directly about using his vehicle in relation to work, he told Marshmallow he was using his car to travel to multiple work sites. And it is only after being told that his policy would be avoided by Marshmallow that Mr D has disputed this and said he doesn’t use it in this way. On balance, I think Mr D’s first explanations for how he used his vehicle – using his vehicle to travel to multiple sites - is most likely to be the case, as that was what he said he used it for, prior to knowing this would be an issue and his policy would be avoided. I’ll also add here that the letter from Mr D’s employer is from three years ago, and gives a wider organisational approach to things, rather than being about Mr D specifically. It also says that personal vehicles shouldn’t be used during the working day, rather than to get to different sites at the start of the day. With the above in mind, I don’t think it was unreasonable for Marshmallow to consider Mr D was using his vehicle to travel to different work sites. Having said that though, I still don’t think this means Marshmallow has acted fairly by avoiding the policy. I’ll explain why. When taking out the policy, Mr D was asked: “Please let us know how you use your car” It then went on to ask: “Social only Social and commuting Social, commuting and business uses” This gave the option to press for further help/explanation of what this meant, in which it gave some further details (I’ve only included the ones of relevance): “Social and commuting – Choose this if you or a named driver drives to and from a single place of work or where you study, but do no other business travel. Business use by the policyholder – choose this if you use the car on business away from your single place of work.”

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Prior to these explanations, directly above, the top section said (my emphasis): “Why does this matter? Insurers look at how you and named drivers on the policy to work out how much risk there is in insuring it. … See which option most closely matches your needs:” Therefore, when considering the available options, this asked Mr D provide the closest match, rather than the actual match. This left it open to Mr D to decide which best suited his circumstances based on the closest, without any direction what to do if none of the options exactly fitted his scenario or usage of his vehicle, or the implications of this not being exactly right. So, Mr D was commuting to a place of work (albeit I’m persuaded, on balance, that was multiple places as outlined above), and based on the broad description in the options available, he wasn’t travelling on business throughout the day to different sites within his working day/hours. Therefore, I don’t think Mr D unreasonably chose SDPC as the closest match which is what he was asked to do. With this in mind, based on the question asked and guidance given alongside this during the sale, I don’t think Mr D has failed to take reasonable care or misrepresented. Consequently, I also don’t think that Marshmallow is acting fairly by applying CIDRA or the remedies available (policy avoidance). Even if I was persuaded there had been a misrepresentation, which I’m not, the misrepresentation would need to be qualifying, i.e. did it make a difference (I’ve already talked about carrying tools above). Marshmallow said had they known how the vehicle was being used, to travel to multiple work sites, they wouldn’t have offered cover. Marshmallow says they offer SDPC and Class 1 business use but they say neither would cover travel to multiple work locations. But I’m not persuaded the underwriting criteria Marshmallow provided demonstrates this is the case. Within Marshmallow’s underwriting guide, this outlines: “Business Class 1 This allows the policyholder and their spouse (if an additional driver) to do all included with SDPC as well as drive to multiple work locations” So, it does appear that cover could have been offered for travel to multiple locations, with Business Class 1 rather than SDPC in any event. So, avoidance wouldn’t have been the correct remedy under CIDRA here if it was a careless qualifying misrepresentation (which I don’t think it was), because Marshmallow would’ve offered cover with Business Class 1 chosen, presumably at a higher premium.

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I should also add here, for completeness, that Marshmallow was seeking to deduct a policy voidance fee of £130 based on the following in their terms and conditions: “If you have given us inaccurate information this can affect your policy in one or more of the following ways: 1. If we would not have provided you with any cover we will have the option to: a. void the policy, which means we will treat it as if it had never existed and repay the premium paid minus a void fee of £130, unless there is any claim in which case the full premium may be retained;” However, strictly applying CIDRA and the relevant remedies, deduction of an avoidance fee isn’t part of that. But, in any event, for the reasons outlined above, I don’t think that Mr D failed to take reasonable care or misrepresented the usage of his vehicle. So, there isn’t any available remedy (including avoidance) for Marshmallow to take here. Therefore, unless anything changes as a result of the responses to my provisional decision, I’ll be directing Marshmallow to: • Reinstate the policy (subject to payment of any premiums due) and reconsider the policy and claim validation (see below) • Remove any records of avoidance internally and externally • Pay the £100 compensation already offered If my final decision is the same as my provisional decision and if Mr D accepts it, then Marshmallow will need to reinstate the policy and reconsider things, including claim and policy validation. But it’s important for me to highlight here, and to manage expectations, this doesn’t necessarily mean that Mr D’s claim will be paid. This is because I’ve only considered the usage of the vehicle and the voidance based on this as this is what Marshmallow has relied on. But it’s also of importance to note, when Mr D took out the policy, he said his occupation was a Marketing Manager and the industry chosen was Marketing. But that isn’t his occupation. Instead, when asked by Marshmallow after making the claim, he said he works as a Drainage Pipe Layer in the Construction industry and had done so since before he took out the policy. Whilst not relying on the occupation chosen by Mr D when avoiding the policy (instead usage was relied on) Marshmallow has commented broadly on this, and that before taking out the policy, Mr D ran multiple quotes with various occupations, including plumber, pipe fitter, construction worker and marketing manager. And all the other occupations chosen resulted in higher premiums than marketing manager which was ultimately selected.

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Our investigator broadly asked Mr D about this and Mr D said he might’ve made a mistake or could have mis-pressed something when taking out the policy. Mr D also said he didn’t see why his occupation was relevant to the policy in any event. Our investigator explained that it might be, for example if Marshmallow wouldn’t have covered his actual occupation, or the premium could’ve been different. But at this stage that’s not known as Marshmallow hasn’t relied on this as part of the voidance, so it’s not something I’ve taken into account here in my decision. So, after reinstating the policy, Marshmallow will need to explore whether there has been any misrepresentation in relation to the occupation. And whether this has made a difference. This could still mean that Marshmallow considers CIDRA and any relevant remedy that applies. And if after doing so, Mr D is unhappy with whatever decision Marshmallow reaches, he would be free to raise a new complaint about that. And to refer a new case to this service subject to our usual rules and timescales.” Therefore, I was minded to uphold the complaint and to direct Marshmallow to: • Reinstate Mr D’s policy (subject to payment of any premiums due) and reconsider the policy and claim validation • Remove any records of avoidance internally and externally • Pay Mr D the £100 compensation already offered The responses to my provisional decision Mr D responded to the provisional decision. He said he mistakenly entered the wrong occupation and when he realised, he tried to contact Marshmallow but found it difficult to reach them. He said he was willing to update the information as soon as he could get through to Marshmallow and he doesn’t think Marshmallow should treat this as deliberate or reckless misrepresentation. Marshmallow responded to the provisional decision. They said their main concern wasn’t Mr D driving to multiple sites, as their own guides show they can cover this under Business Class 1. Instead, Marshmallow said the original decline was because they considered the tools Mr D had in his vehicle was ‘goods carrying’, which they don’t cover. However, they said they’ve re-looked at this and given the items Mr D had in his vehicle, and what I said in the provisional decision, they agree to step back from this position. Marshmallow said they are unable to reinstate the policy due to system limitations but would reconsider the policy and claim validation. They also said they’d remove any records of avoidance internally and externally, and that they were still planning on paying the £100 compensation offered previously. However, Marshmallow also said they’ll still need to discuss with Mr D the occupation he selected, and the multiple quotes run with different occupations (with higher prices) to establish what happened when taking out the policy, and whether this would have made any difference to being able to offer a policy, and at what price.

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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. And I’ve thought carefully about the provisional decision I reached, and the responses to it. Marshmallow appears to have agreed with what I’ve said in my provisional decision about how Mr D was using his vehicle - in my view was most likely using it to travel to different sites. I also explained why I didn’t think he’d unreasonably picked SDPC based on the questions and guidance available during the sale. And Marshmallow have agreed, as I said in my provisional decision, that they would’ve been able to offer cover under Class 1 business use in any event. And Marshmallow also no longer considers Mr D carrying tools in his vehicle to be an issue or reason to avoid the policy either. For the reasons outlined in my provisional decision, when taking out the policy, based on the questions asked and guidance given during the sale, my view remains that in relation to both carrying tools and using the vehicle to travel to multiple sites, I don’t think Mr D has failed to take reasonable care or misrepresented. Therefore, my view remans that I don’t think Marshmallow acted fairly by applying CIDRA or the remedies (policy avoidance) based on this. And Marshmallow appears to agree with this. They also confirmed they’ll remove internal and external records of the avoidance and will pay the £100 compensation previously offered. Marshmallow has said they are unable to reinstate the policy though, due to system limitations. Therefore, if Marshmallow are unable to reinstate the policy on their systems, they will need to reconsider the policy and claim validation as if the policy had been reinstated (subject to the payment of any premiums which would’ve been due). But to reiterate, as outlined in my provisional decision, this doesn’t necessarily mean Mr D’s claim will be paid. I won’t repeat the reasons in full here, as this is already explained in detail in my provisional decision above. But in summary, there is still a discrepancy in the occupation Mr D selected, which had a lower premium, after carrying out multiple quotes with different occupations at higher premiums. And Marshmallow will need to explore this with Mr D in the first instance to establish whether this has made a difference. And this could still mean Marshmallow considers CIDRA (and any relevant remedy) applies. I recognise that when responding to my provisional decision, Mr D has only provided commentary on why he selected the occupation he did, and no other comments on anything else I talked about in my provisional decision. However, I’m not considering the occupation he chose or why, for the reasons I outlined in detail in my provisional decision - because that’s not been relied on by Marshmallow to avoid the policy – at this stage. But as I outlined, after Mr D and Marshmallow have discussed the occupation discrepancy, if Mr D is ultimately unhappy with whatever decision Marshmallow reaches, he’d be free to raise a new complaint about that and refer a new case to this service subject to our usual rules and timescales.

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My final decision It’s my final decision that I uphold this complaint and direct Marshmallow Insurance Limited to: • Reinstate Mr D’s policy (subject to payment of any premiums due) and reconsider the • policy and claim validation – or if Marshmallow are unable to reinstate it, treat things as if it had been (subject to payment of any premiums due) and reconsider the policy and claim validation • Remove any records of avoidance internally and externally • Pay Mr D the £100 compensation already offered Under the rules of the Financial Ombudsman Service, I’m required to ask Mr D to accept or reject my decision before 12 May 2026. Callum Milne Ombudsman

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