Category: Claims handling · Reviewed by Chrissie Anderson, Client Executive · Last reviewed 2026-06-11
Vexatious refusal is the historical phrase for refusal of an insurance claim on insubstantial or unreasonable grounds — a concept that, in modern English law, is subsumed within bad-faith handling, the section 13A duty, ICOBS 8 and the Consumer Duty.
“Vexatious refusal” was the standard description in older English insurance practice for an insurer’s decision to decline cover on grounds that the policyholder considered specious. The phrase implied not just error but lack of good faith — a refusal that should not have been made, by an insurer that ought to have known better.
In modern English law, vexatious refusal has been absorbed into the broader concepts of bad-faith claims handling, breach of the section 13A reasonable-time duty, ICOBS 8 unfairness and Consumer Duty failure. The phrase is still used colloquially but the legal analysis flows through the modern frameworks.
The historical concept appears in older case law on the duty of good faith and on damages for delay. The modern framework includes:
The modern operative test is whether the insurer’s refusal was reasonable on the facts known or knowable at the time. An insurer that:
is likely to be in breach of one or more of the modern duties, and the policyholder will have the modern remedies — section 13A damages, FOS award, FCA censure.
Vexatious refusal manifests in identifiable ways:
The policyholder’s response:
For consumer policyholders, the FOS complaint is the dominant route. The FOS regularly upholds complaints about unreasonable refusal and awards substantive payment of the claim plus distress and inconvenience compensation.
For commercial policyholders, court litigation is the principal route. The policyholder can pursue (i) declaratory relief on the cover question, (ii) recovery of the policy proceeds, (iii) section 13A damages for the delay caused by the unreasonable refusal, and (iv) indemnity costs on the basis of the insurer’s unreasonable conduct.
For regulatory escalation, the FCA receives information through FOS final decisions, supervisory engagement and direct complaints. Patterns of unreasonable refusal across a line of business attract thematic review.
The internal-control consequences for insurers are substantial. An insurer that frequently has refusals overturned by the FOS or by court action will be subject to internal review, board-level oversight and possible FCA engagement. Senior management responsibility under SMCR can be engaged where the pattern reflects management failure.
“Technical refusal” — refusal on a strict reading of the policy where a more sympathetic reading would have allowed cover.
“Investigatory refusal” — refusal pending further investigation, where the investigation itself is unreasonable.
“Conditional refusal” — refusal conditional on the policyholder providing further information that is then refused on the same ground.
“Boilerplate refusal” — refusal in standardised terms without engagement with the specific facts.
“Late refusal” — refusal at the very end of the reasonable-time period, after extensive investigation and engagement.
A small-business policyholder’s £85,000 business interruption claim arising from a localised flood is refused by the insurer on the basis that the flood was not a “named peril” under the policy. The policy in fact responds to “loss caused by flood, storm or escape of water” — a wording the insurer’s letter does not engage with.
The policyholder complains. The insurer’s final response maintains the refusal. The policyholder takes the matter to the FOS.
The FOS reviews the policy wording and concludes that the refusal was unreasonable: the wording plainly covered the flood. The FOS directs:
The insurer, separately concerned about the pattern (the FOS decision is one of several similar cases that quarter), conducts an internal review of the claims operation. Process improvements are made; the responsible handler is moved to training; the team’s coverage decisions are subject to enhanced technical review.
The FCA’s thematic review of flood claims handling in the same quarter notes the insurer’s improvement programme and signals that further unreasonable-refusal patterns will attract enforcement attention.
By Matt Bartlett, Director, on 2026-06-11. Next review: 2026-12-11.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-11. Apex Insurance Brokers Limited, FCA FRN 724952, Companies House 07014570. Not regulated advice — consult your broker on your specific position.
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