Mellisa Collett.
Melissa Collett discusses why there is legal uncertainty in a recent Financial Ombudsman decision on an Aviva life policy complaint.
Melissa Collett discusses why there is legal uncertainty in a recent Financial Ombudsman decision on an Aviva life policy complaint.
Does FOS’s fair and reasonable jurisdiction occupy an ‘uncertain space’ outside common law and statute?
Mr Justice Jay in Aviva Life & Pensions (UK) Ltd, R v McCulloch & Anor [2017] EWHC 352 said as much in a judgment handed down this week in the High Court.
Mr Justice Jay in Aviva Life & Pensions (UK) Ltd, R v McCulloch & Anor [2017] EWHC 352 said as much in a judgment handed down this week in the High Court.
Aviva brought judicial review proceedings against a decision by a FOS ombudsman that it should reinstate a single life policy after it had voided it on the grounds of non-disclosure of mental health concerns and a referral for a CT scan.
Shortly after taking out the policy, the policyholder was diagnosed with a rare form of dementia which had caused him to suffer personality changes which his family had raised with his GP.
Although the policyholder had also discussed the matter with his doctor and a psychiatrist shortly before he applied for the policy, he had no insight into his condition.
Both doctors were unsure whether he had a mental illness or whether changes in his behaviour were due to underlying personality traits.
Significantly, the policyholder had had a joint life policy together with his wife through Aviva for a number of years until his personality started to change. He started to incur debts and the marriage broke down.
Shortly afterwards, he cancelled the joint life policy with Aviva, as they could no longer afford the premium.
Aviva requested he obtain his wife’s consent in writing which he subsequently provided. He didn’t know it at the time, but his personality changes were caused by the rare form of dementia he was starting to suffer from at this time.
After his diagnosis, his condition deteriorated rapidly and his family notified Aviva of a potential terminal illness claim.
Aviva’s voidance of the single life policy and refusal to consider the claim on the grounds of misrepresentation led to a complaint to FOS.
FOS upheld the complaint on the basis that the policyholder’s misrepresentation was innocent. He did not recognise that he had a mental health problem and didn’t view his referral to a psychiatrist or for a CT scan as being relevant to disclose, as in his mind, there wasn’t anything mentally wrong with him.
FOS did however accept that Aviva’s cancellation of the joint life policy was reasonable, and it did not need to consider any potential claim under it.
There are several interesting points arising from this case, not least of which is whether the FOS made the right decision or not.
However, that wasn’t the key issue in front of the High Court, but rather whether the ombudsman had explained the decision with adequate reasons.
Another point is the ombudsman’s power to direct an insurer to reinstate a policy where the sum assured exceeds £150,000, its monetary limit. The sum assured on the single life policy was £500,000.
FOS can and routinely does consider cases where the sum assured exceeds its limit on the basis that it is merely making a direction for the insurer to reinstate the policy and consider the claim.
In this case, Aviva had not considered whether the policyholder had a valid terminal illness claim.
So it was by no means apparent whether the ombudsman’s decision would lead to a payment of the sum assured.
The judge in this case clarified that it was irrelevant whether the current terminal illness claim was valid or not – either way, it would be liable to pay £500,000 at some point within the term.
Therefore, the ombudsman’s decision was not merely a direction but a money award which would be affected by the £150,000 limit.
This reflects a previously decided point that the ombudsman cannot circumvent the statutory limit by making a direction, if in substance the direction would result in a money award.
Insurers should bear this in mind in cases where the sum assured exceeds £150,000.
Ultimately, the judge agreed with Aviva that the ombudsman’s decision should be quashed and re-considered afresh.
FOS had in fact consented to the decision being quashed at any early stage, conceding that that the ombudsman’s decision was inadequately reasoned.
Nevertheless, Aviva decided to pursue proceedings anyway to obtain a judgment which set out, for the record, that it had acted in accordance with the law and fairly, in order to stop FOS from reconsidering it.
It also appeared to seek a judgment to highlight the circumstances in which an ombudsman decision could be successfully judicially reviewed.
The adequacy or otherwise of an ombudsman’s reasons for departing from the law was a key issue in this case.
The judge confirmed that where an ombudsman decides the outcome of a case on the basis of what is ‘fair and reasonable’, rather than the strict legal position, the ombudsman must explain why and give reasons.
In fact, this point had already been established by previous case law, and of course Article 6 of the European Convention on Human Rights.
It is routinely drilled into every ombudsman that they must explain why they are reaching their conclusion in a particular case, especially where they may be departing from the law. So what’s new here?
Several things: FOS increasingly strives for its decisions to be accessible to consumers. This means that they rarely, if ever, refer to law and regulations, even though the rules require the ombudsman to take these things into account.
They are also designed to be readable by a member of the public. Whilst there is nothing wrong with trying to comprehensible, there is a risk that complicated issues of legal argument are not being adequately explained.
An emphasis on shorter decisions and providing quick answers could also lead to ombudsmen cutting corners with reasoning.
The judge quoted from the ombudsman decision at length in his judgment. By doing so, the judge was implicitly highlighting the shortcomings due to the informal style of the decision.
The idea that an ombudsman can reach a conclusion on the basis of what’s fair and reasonable, rather than the law, and then not fully explain it, clearly confounded the judge.
He observed that the ombudsman’s fair and reasonable jurisdiction occupied an ‘uncertain space’.
To him, ombudsman decision-making was outside the normal parameters of common law and statute, making ombudsman decisions hard to assess on an objective basis.
But the judge recognised that, in bringing FOS into being, Parliament decided that ombudsmen should have these special decision-making powers, and he acknowledged that previous courts had accepted the ombudsman’s remit as going beyond the law.
Nevertheless, this judgment highlights the uneasy co-existence of the ombudsman and the courts, and the potential for successful challenge of ombudsman decisions that are insufficiently well-reasoned.Article is care of Cover magazine,an
d the original article and more great items can be found here
http://www.covermagazine.co.uk/cover/opinion/3005737/aviva-court-judgment-highlights-flaws-in-fos-decision-making?utm_medium=email&utm_campaign=CV.SP01.Daily_RL.EU.A.U&utm_source=CV.DCM.Editors_Updates
Shortly after taking out the policy, the policyholder was diagnosed with a rare form of dementia which had caused him to suffer personality changes which his family had raised with his GP.
Although the policyholder had also discussed the matter with his doctor and a psychiatrist shortly before he applied for the policy, he had no insight into his condition.
Both doctors were unsure whether he had a mental illness or whether changes in his behaviour were due to underlying personality traits.
Significantly, the policyholder had had a joint life policy together with his wife through Aviva for a number of years until his personality started to change. He started to incur debts and the marriage broke down.
Shortly afterwards, he cancelled the joint life policy with Aviva, as they could no longer afford the premium.
Aviva requested he obtain his wife’s consent in writing which he subsequently provided. He didn’t know it at the time, but his personality changes were caused by the rare form of dementia he was starting to suffer from at this time.
After his diagnosis, his condition deteriorated rapidly and his family notified Aviva of a potential terminal illness claim.
Aviva’s voidance of the single life policy and refusal to consider the claim on the grounds of misrepresentation led to a complaint to FOS.
FOS upheld the complaint on the basis that the policyholder’s misrepresentation was innocent. He did not recognise that he had a mental health problem and didn’t view his referral to a psychiatrist or for a CT scan as being relevant to disclose, as in his mind, there wasn’t anything mentally wrong with him.
FOS did however accept that Aviva’s cancellation of the joint life policy was reasonable, and it did not need to consider any potential claim under it.
There are several interesting points arising from this case, not least of which is whether the FOS made the right decision or not.
However, that wasn’t the key issue in front of the High Court, but rather whether the ombudsman had explained the decision with adequate reasons.
Another point is the ombudsman’s power to direct an insurer to reinstate a policy where the sum assured exceeds £150,000, its monetary limit. The sum assured on the single life policy was £500,000.
FOS can and routinely does consider cases where the sum assured exceeds its limit on the basis that it is merely making a direction for the insurer to reinstate the policy and consider the claim.
In this case, Aviva had not considered whether the policyholder had a valid terminal illness claim.
So it was by no means apparent whether the ombudsman’s decision would lead to a payment of the sum assured.
The judge in this case clarified that it was irrelevant whether the current terminal illness claim was valid or not – either way, it would be liable to pay £500,000 at some point within the term.
Therefore, the ombudsman’s decision was not merely a direction but a money award which would be affected by the £150,000 limit.
This reflects a previously decided point that the ombudsman cannot circumvent the statutory limit by making a direction, if in substance the direction would result in a money award.
Insurers should bear this in mind in cases where the sum assured exceeds £150,000.
Ultimately, the judge agreed with Aviva that the ombudsman’s decision should be quashed and re-considered afresh.
FOS had in fact consented to the decision being quashed at any early stage, conceding that that the ombudsman’s decision was inadequately reasoned.
Nevertheless, Aviva decided to pursue proceedings anyway to obtain a judgment which set out, for the record, that it had acted in accordance with the law and fairly, in order to stop FOS from reconsidering it.
It also appeared to seek a judgment to highlight the circumstances in which an ombudsman decision could be successfully judicially reviewed.
The adequacy or otherwise of an ombudsman’s reasons for departing from the law was a key issue in this case.
The judge confirmed that where an ombudsman decides the outcome of a case on the basis of what is ‘fair and reasonable’, rather than the strict legal position, the ombudsman must explain why and give reasons.
In fact, this point had already been established by previous case law, and of course Article 6 of the European Convention on Human Rights.
It is routinely drilled into every ombudsman that they must explain why they are reaching their conclusion in a particular case, especially where they may be departing from the law. So what’s new here?
Several things: FOS increasingly strives for its decisions to be accessible to consumers. This means that they rarely, if ever, refer to law and regulations, even though the rules require the ombudsman to take these things into account.
They are also designed to be readable by a member of the public. Whilst there is nothing wrong with trying to comprehensible, there is a risk that complicated issues of legal argument are not being adequately explained.
An emphasis on shorter decisions and providing quick answers could also lead to ombudsmen cutting corners with reasoning.
The judge quoted from the ombudsman decision at length in his judgment. By doing so, the judge was implicitly highlighting the shortcomings due to the informal style of the decision.
The idea that an ombudsman can reach a conclusion on the basis of what’s fair and reasonable, rather than the law, and then not fully explain it, clearly confounded the judge.
He observed that the ombudsman’s fair and reasonable jurisdiction occupied an ‘uncertain space’.
To him, ombudsman decision-making was outside the normal parameters of common law and statute, making ombudsman decisions hard to assess on an objective basis.
But the judge recognised that, in bringing FOS into being, Parliament decided that ombudsmen should have these special decision-making powers, and he acknowledged that previous courts had accepted the ombudsman’s remit as going beyond the law.
Nevertheless, this judgment highlights the uneasy co-existence of the ombudsman and the courts, and the potential for successful challenge of ombudsman decisions that are insufficiently well-reasoned.Article is care of Cover magazine,an
d the original article and more great items can be found here
http://www.covermagazine.co.uk/cover/opinion/3005737/aviva-court-judgment-highlights-flaws-in-fos-decision-making?utm_medium=email&utm_campaign=CV.SP01.Daily_RL.EU.A.U&utm_source=CV.DCM.Editors_Updates
