The Halifax has been rebuked by the Financial Ombudsman Service for making a "significant error" in promising life-long insurance to pet owners.
The bank, now part of Lloyds, could find itself having to compensate thousands of customers, after the Ombudsman, Tony Boorman, found that it had misled them into thinking that cover for ongoing illnesses would continue indefinitely.
The case centred on a complaint about a dog called "Lucky" who has a skin condition costing £500 a year to treat.
The Halifax pulled out of the pet insurance business last year but has now been told that it should provide Lucky's owner with another 3 years of cover plus £200 in compensation.
The "life-long" policy cost £6 a month initially, rising to £10 a month later on, providing cover for vets bills of up to £1,000 a year.
When it was bought in 2005, Halifax congratulated Lucky's owner, know only as Ms W, on choosing "the right cover, no matter what the future brings".
The policy was particularly valuable because once Lucky's condition worsened, Mrs W was able to make claims year after year, as long as she renewed every 12 months.
However, when the bank decided to exit the business the dog's cover came to an end, because other insurers would have excluded pre-existing conditions from a new policy.
In his provisional finding Tony Boorman said:
"The description of the policy as "life-long" seems to me to be a significant error by Halifax. The policy was not life-long...and it was clearly misleading to suggest that it was."
He decided that the Halifax should provide "top-up" cover for Lucky's skin condition, if Ms W paid for a policy with another provider.
Although Lloyds and the Halifax had 30,000 pet insurance customers between them, it is thought that only a few thousand had policies which covered them for pre-existing conditions over an indefinite number of years.
A Lloyds Banking Group spokesman suggested that it would provide further help for any pet owners affected by the problem, saying "We are committed to continuing to support our customers and are sorry for the inconvenience we may have caused."
So Lucky's compensation could open the way to generous deals for thousands of other pets once covered by the Halifax.
Full text of the Lloyds statement to the BBC:
"Lloyds Banking Group withdrew from the pet insurance market last year. We acknowledge that this decision has caused concern among some customers whose pets have pre-existing medical conditions and are having difficulty finding a new insurer.
"We are urgently working on a solution for customers with pets who have pre-existing conditions and will be contacting them in the next few weeks with our proposals.
"If any customer wants to check if they are affected, they can contact us. We are committed to continuing to support our customers and are sorry for the inconvenience we may have caused."