No-claims bonus the only casualty: If motorist Sarah Woolf's experience is typical it knocks a large hole in received insurance wisdom

CAN a motorist lose a no- claims bonus on the basis of an unsubstantiated claim against his or her insurance? If Sarah Woolf's experience is typical, the answer is yes.

Ms Woolf, an assistant director with the British Lung Foundation, received a letter in May last year from a firm of solicitors. The letter informed her that their client had been a passenger on a bus that braked violently to avoid a car that pulled out of a side road. This passenger, the solicitors asserted, suffered injury in the incident.

The letter stated that the number plate indicated that the owner of the vehicle was Ms Woolf or another named individual. The letter continued: 'Our client . . . looks to you for the payment of damages to compensate him for the loss and injuries which he has sustained. In the circumstances, would you please acknowledge receipt of this letter and confirm that it has been passed to the vehicle insurers.'

Ms Woolf has no recollection of any such incident. However, as she was insured through the AA, Ms Woolf contacted it for advice. The AA 24-hour Claimline sent a claim form that Ms Woolf was instructed to complete and return to the insurers, Bishopsgate Insurance Limited. Ms Woolf deleted from the claim form the word 'claim' and stated in the covering letter, 'I am not making a claim as I have no knowledge of this incident.'

The claim form also included the words: 'Some policy holders may wish to notify us of incidents simply to comply with policy conditions but do not require us to handle the claim, as any action on our part may lead to the loss of No Claims Discount.' Within 10 days of dispatching the form to the insurers, Ms Woolf was sent a demand for pounds 237.24 by AA insurance services, having heard nothing further from the AA over the alleged incident.

The explanation given? 'The recent reduction of no-claims bonus notified to us has now been recorded which results in an extra premium.'

Ms Woolf spoke to the AA insurance services, which informed her that since a claim was being made against her, even though it had not been proved and no money had changed hands, she would lose her no-claims bonus. Ms Woolf pointed out that there had been no pay-out under the policy, and as such the increased insurance premium suffered as a result of the loss of the no-claims bonus should only occur when the policy was renewed in the following year. She was informed that as the alleged incident had occurred in February and she had renewed her policy in May, the additional premium must be paid immediately.

The AA confirmed in writing: 'If the claim of 18.02.93 (sic) is settled non-fault, the additional premium will be refunded.' Ms Woolf had a further letter from AA insurance services threatening: 'If payment is not made within seven days your file will be passed to our Debt Recovery Department or Solicitors for immediate County Court action.'

Ms Woolf comments: 'I was outraged. No money had changed hands and it had not been proved that I was involved in the alleged incident. The whole manner in which matters were being handled was causing me a great deal of stress.'

Ms Woolf paid the additional premium on the condition that it would be refunded if the insurers incurred no liability. She also asked for a copy of the section of the insurance policy that justified the AA's approach. Receipt of the payment was acknowledged and the AA confirmed that it would be refunded if the claim was settled in Ms Woolf's favour. The requested insurance policy was not sent. At the end of September, Ms Woolf contacted the AA again and was told that she might have to wait for up to three years for a refund. The rationale for this was that three years is the time period within which proceedings in respect of a claim for personal injury must be commenced if it is not to be time-barred.

Ms Woolf continued to press the AA to resolve matters in order to obtain a refund, without success. There were no further developments until November when the Independent on Sunday contacted the AA on Ms Woolf's behalf.

Within a few days pounds 237.24 paid by Ms Woolf was refunded and her no-claims bonus was reinstated. The letter enclosing payment explained: 'The reason for this is because the third party claim against you cannot be substantiated.' Ms Woolf said: 'I am outraged by the way I have been treated by the AA. I still have not received an adequate explanation and wonder how many others have suffered this type of treatment.'

(Photograph omitted)