As if Tesco didn’t have enough problems to contend with, it has now found itself in hot water with the financial ombudsman after leaving a flood victim high and dry for more than two years. Helen Gorrill, whose house in Cumbria was flooded in 2012, says she and her son have been forced to live on friends’ sofas after Tesco’s financial services arm did “everything possible” to avoid paying her insurance claim – and carried on doing so, even after the ombudsman ordered it to pay up.

Almost 28 months have passed since Gorrill’s home in Newbiggin, near Penrith, was flooded when groundwater rose from underneath the former chapel. But in spite of the fact that she had an expensive £700-a-year household policy with Tesco Bank, not a single repair has been carried out.

And until Guardian Money got involved this week, it was still fighting her contents claim – initially refusing to pay anywhere near what she says is the full value of the damaged items.

The successful artist, who has work archived at the Brooklyn Museum in New York and who is in the middle of a PhD, claims Tesco’s appointed staff have fought her claim every step of the way, “almost in a vindictive way”, in an attempt to limit a payout.

The dispute has meant she and her son, who has suffered a brain haemorrhage, have had to rely on the generosity of friends. Her daughter has been forced to live with her father, miles away. It has also, Gorrill says, left her hugely in debt and “exhausted”.

In a strongly worded statement, the Financial Ombudsman Service told us it had made it “very clear” to the retail giant that this was a valid claim, adding: “We’re currently speaking to the senior management team at Tesco to establish what factors might be adding to the delay in resolving this matter ... If we feel a bank or insurer has deliberately stalled, or avoided carrying out our decision, we will report it to the regulator as a matter of course.”

It’s a case that will be of keen interest to others who have Tesco’s home insurance. It is also one of the worst that Money has come across in recent years, of an insurance company trying to persuade – some might say bully – a customer into accepting a lower payout. Worryingly, it suggests companies may be prepared to ignore the spirit of financial ombudsman decisions, which are supposed to be legally binding.

Gorrill’s problems started in July 2012 when water started coming up from underneath the converted 1867 chapel following a groundwater flood – where the ground becomes so saturated that the water table rises.

The house was left uninhabitable, but when she put in a claim on her policy she was surprised when it was declined. Tesco argued that the water must have leaked from an appliance or been due to faulty workmanship.

Faced with a water-damaged home and no insurance payout, she and her two teenage children were forced to move out – not least because her son’s condition made it impossible to stay in the property. She appealed Tesco’s refusal to the ombudsman, and in May 2013 it ruled that Tesco should have paid her claim. However, the company refused to accept the decision and appealed – and, in doing so, managed to “spin out” the process for a further 14 months.

Finally, in July this year, the ombudsman service again ruled in Gorrill’s favour and ordered the company to pay her claim as per the policy. Unusually, it also ordered it to pay her £1,000 compensation – the sort of sum only awarded in the most serious cases.

But even after that, Gorrill says the company’s loss adjusters have continued to dispute payouts and, in one case, accused her of trying to take advantage of being in a “windfall position”. She says she has simply tried to get Tesco to pay for the alternative accommodation it had originally refused to fund.

Three estate agents valued the cost of renting an equivalent property at £800 a month, she says, but all Tesco would offer her was £450, which it later upped to £500 and finally, after Money intervened, £600 a month.

Tesco-appointed staff had originally cited two-bed houses on council estates surrounded by boarded-up homes as evidence, even though she needed a three-bed property.

“Right from the start there has almost been a determination not to pay up. I always thought ombudsman decisions were binding, but Tesco has continued to do everything possible not to pay out. One surveyor, an expert on flooding claims, told me recently it was as though they were trying to be as obstructive as they could.”

She says she was told by Tesco that she could either take up its alternative accommodation offer or go through the whole two-year complaints procedure with the ombudsman again.

“As I am in so much debt from the flood after being told I wasn’t insured, I felt I had no option but to take some of the money now to start to pay off some of what I owe.”

She says she even had to chase the payment of £1,000 that the ombudsman awarded her and that, since July, the bank has also been arguing about how, and when, repairs will start, even disputing the value of all her contents.

“I had a full-size Parisian antique mannequin valued at £325, but Tesco tried to get me to accept a mass-production one for £40 from an eBay auction.

“It has offered cheap £1.99 door handles from B&Q or similar, when mine are handmade in a blacksmith and worth £25 each ... the list goes on. It has spent hours arguing over quite small sums of money. There doesn’t seem to be any real penalty for companies ignoring these adjudications,” she says.

A spokesman for the ombudsman service told Money that it takes a very dim view of companies that don’t abide by its decisions. “It’s not for Tesco to interpret what it thinks it’s supposed to do when it comes to an ombudsman decision ... Our decision makes it clear we expect the firm to deal with the claim – and we’ve made it very clear we believe this is a valid flood claim and is covered under their policy.

“In addition, we also instructed Tesco to pay a considerable amount of compensation – £1,000 – to reflect its failure to deal with this matter appropriately.”

A Tesco spokeswoman says it has fully investigated the situation and offered Gorrill an alternative loss adjustor to manage her case.

“We take incidents such as these seriously, and have taken steps to prevent this happening again. We have also apologised to Ms Gorrill for the upset this caused her.

“Tesco Bank originally rejected the claim as we felt the damage was caused by rising damp, and not a one-off weather event such as a flood. However, we accept the judgment of the Financial Ombudsman Service and are complying with all aspects of the ruling.”

She says that in the four months since the ruling more than £40,000 has been paid to Gorrill to cover the damaged home contents, alternative accommodation costs and compensation.

“We understand how important it is that repairs are progressed quickly and are doing everything we can to ensure this happens. Ms Gorrill has appointed a surveyor to assess the damage and we have requested a meeting with our own surveyor to agree the required work.

“This is standard industry practice in claims where the customer has appointed their own surveyor. We look forward to hearing from Mrs Gorrill so that we may progress with her claim.”

Meanwhile, Gorrill just wants to get on with her life. She has now hired her own surveyor to ensure Tesco carries out the work properly. She had hoped the restoration work will begin before Christmas but fears it won’t, meaning it is unlikely she will be back in before next summer – three years after the flood.