Has Elephant made a big mistake?

Q My son had car insurance from Elephant. He set up a monthly direct debit but only one payment had been made before his car was written off in an accident that wasn't his fault.

When Elephant paid up two and a half months' later it deducted the cost of a year's insurance from his settlement. When we queried whether this was legal Elephant assured us it was, but it went on to say that when my son bought another car it would "do a deal" as regards the insurance. This sounds awfully like blackmail to me. Is it allowed?

MR

A The following is stated in Elephant's general policy conditions for instalment payers (such as your son):

"If you have not paid all of your premium, we may take any unpaid premiums from any claim settlement we make to you. If we pay you for a total loss claim, we will deduct all unpaid premium from your claim settlement."

There is another clause that prevents policyholders who pay in full at the outset of the policy from getting a refund on their premiums if they cancel the policy part way through the period of insurance, so it seems Elephant's terms are pretty clear.

The sales person who offered to "do a deal" might simply have meant that he or she would be able to offer good terms to your son on a new insurance policy, seeing as the accident wasn't his fault.