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Peter Hamilton: The FOS is ignoring the law on complaints


Does the Financial Ombudsman Service fail to take the law into account when making its awards? I have come across awards that arose from income protection contracts in which it seems to have developed its own rules contrary to what the law would be on the issues in question.

The relevant facts of one such case were that the insured had made a claim in respect of a disabling illness that had prevented him from working. The insurer had dealt with the claim up to a certain date. However, after that date, the insurer asked the insured to provide fresh medical evidence in support of his claim he continued to be disabled and could not work. Unsurprisingly, the terms of the contract entitled the insurer to ask for that evidence from time to time and if the insured did not co-operate or provide the required medical evidence the insurer was entitled to refuse to carry on paying benefit under the contract.

When the insured did indeed fail to provide the evidence, the insurer duly refused to continue to pay the contractual benefit. The insured complained to the FOS and the ombudsman upheld the claim and required the insurer to continue to pay the benefit. The reason the ombudsman gave was that it had an established practice that required the insurer to show the insured had improved in health before it could stop making payments. The FOS gave no reasons for preferring its own practice to the clear terms of the contract.

That practice has the effect of overriding the perfectly reasonable terms of the policy: it is surely acceptable for the insurer to insist the insured undergo medical examinations and provide medical evidence in support of the continuing claim. By failing to do so, the insured is in breach of the express terms of the contract and the general mutual duty the insurer and the insured deal with each other with the utmost good faith. It is not only natural for the claimant to have to prove his entitlement to the benefit under the contract but it is also what the policy says. Yet the FOS practice places the burden of proof on the insurer to prove the health of the claimant has improved to the extent he is no longer disabled from working. That is impossible if the claimant refuses to undergo a medical examination or otherwise to provide up to date medical evidence.

Can this practice of the FOS be reasonable and in accordance with its statutory duty? The answer is no.

The starting point is that the FOS is required by s.228(2) of the Financial Services and Markets Act 2000 to decide complaints “by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case”. Meanwhile, the Court of Appeal has ruled the FOS is not obliged to apply the relevant law as if it were a court, unlike the various ombudsman schemes the FOS superseded.

The FOS is, however, required by the rules in the FCA’s Handbook at DISP 3.6.4 to take the relevant law into account in its consideration of what is fair and reasonable in all the circumstances of the case (it is also required to take into account other matters such as the FCA’s own rules, guidance and standards, and good industry practice). Thus Lord Justice Stanley Burnton said in the same Court of Appeal decision:

“[The ombudsman] is free to depart from the relevant law but if he does so he should say so in his decision and explain why.”

Recently, in a case between the governors of the London Oratory School and a schools adjudicator, Mr Justice Cobb had to decide what the duty “to have regard to” guidance meant in a very different context: namely, what was the duty of the governors of a school when framing a school’s admission policy. The school’s governors had to “have regard to any guidance from”, in this case, the Roman Catholic Archdiocese of Westminster.

The judge decided the governors must take the relevant guidance into account and, if they decide to depart from it, must have and give clear reasons for doing so. Those reasons must be proper or legitimate.

It follows that because the FOS did not give any reasons for applying its so-called practice, and had failed to give effect to the contract, it had not properly taken the law into account.

There is one important general conclusion as well. All those dealing with the FOS must take every opportunity to emphasise that when it decides complaints that involve departing from the law, regulators’ guidance, codes of practice or good industry practice, it must give reasons and they must be clear, proper and legitimate. Failure to do so exposes the FOS to judicial review.

Peter Hamilton is a barrister specialising in financial services at 4 Pump Court and co-founder of 



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There are 22 comments at the moment, we would love to hear your opinion too.

  1. So it’s basically a case of making it up as you go along! What exactly is the point of a contract once FOS becomes involved?

  2. Any chance of the ombudsman decision case reference?

    I’m playing devil’s advocate here as I know most advisers won’t rush to defend the FOS. But it is not necessarily as clear cut as “the terms said the client must have regular medicals so off he must go if he still wants his income”. Some insurers may be tempted to use repeated medicals as a means to find some way of stopping the claim. We don’t want insurers behaving like ATOS. The onus absolutely should be on the insurer to prove that the claimant’s health has improved, not on the claimant to prove that he is still unable to work.

    That doesn’t necessarily mean the client should be able to refuse to have a medical. But the need to attend further medicals should be reasonable and proportionate. If the terms of the contract say that the client must have a medical every month if he wants to keep claiming, and also that the only doctor the insurer trusts practises on the Isle of Skye and the client must travel at his own expense, then clearly the terms are unfair and should be unenforceable.

    But it is perfectly possible that the insurer was being reasonable, which is why I would quite like the case reference so we can see for ourselves.

    (IA of course NAL, unlike Mr Hamilton.)

    • Philip Castle 6th July 2015 at 6:36 pm

      The Ombudsmans decisions on the Fraud Case (Cirencester F.S v Parkin) are not available on the FOS website as this all started back in 2007. I have made an FOI to get copies from the FOS and they have told me they will reply by 5th August 2015. I will not hold my breath that I will get a reply by then, let alone one that is either complete or evern redacts names. The Judge mentions the names of both Ombudspeople who accepted the word of what turned out to be a fraudster over the regulated firm and it’s Drs. The judge found otherwise after a little digging had been done on Utube and Facebook for goodness sake!

  3. As I have shared before, the disturbing ‘progress’ is that the FOS is not accountable to anyone. It should be accountable to the entity which ‘spawned it’, the FCA really, which in itself is then technically subject to the Courts and Parliament. This does mean that it creates its own laws albeit not even relying upon precedent to determine cases.

    This also means that an aggrieved person or regulated entity has no recourse to anyone to protest against something, however unjust. Even your MP shrugs-it-off as there is no accountability at the FOS. Judicial review only considers the processes engaged and not the matters of the judgement at all.

    It is disturbing already but imagining a future entity without pig-in-the-python work like PPI and a whole raft of zealous employees keen to preserve their positions and potentially making the rules to satisfy its own caseload. No of course not… perhaps adverts offering comparative investment performance assessment so that awards of any under-performance against the alternatives might keep them engaged? No, naturally impossible!

  4. Matthew Rodhouse 15th June 2015 at 5:21 pm

    It would be more interesting if Mr Hamilton had reviewed the Unfair Terms in Consumer Contracts (“UTCC”) Regulations 1999, their coming replacement, the Consumer Rights Act 2015, and the recent Supreme Court judgement, Plevin V Paragon Personal Finance Limited (2014), based on the Consumer Credit Act 1974. All three react to an imbalance in knowledge and expertise between the parties to the contract and this seems to me to be the issue at stake. The original FSA guidance on the UTCC Regulations 1999 issued as part of the Treating Customers Fairly initiative commented on income protection cases and would be worth looking up (if it has not been withdrawn) to remind ourselves of the issues.

  5. With respect, hardly a news flash. FOS routinely ignores jurisdictional and legal issues in its haste to be seen not to disadvantage consumers. Its decisions are very often totally illogical, confused in their thinking and downright inconsistent. Regrettably, with the excpetion of one or two very good Ombudsmen, nobody there seems to care – whatever the impact on the industry. It was supposed to be a no frills and straightforward streamlined dispute resolution service – instead it is has bceome a bastion for unmeritorious claims which still takes a year or more to arrive at a “speedy” conclusion. It is not fit for purpose and should be replaced with a more balanced and coherent system.

  6. Julian Stevens 15th June 2015 at 8:37 pm

    Thus demonstrating, yet again, that all regulatory bodies should be subject to the imprimatur of an independent statutory body. In this case, the claimant can complain to the FOS, which has found in his favour despite a clear breach of his contractual obligations, yet the insurer appears to have no recourse to any outside body. Does the FOS, like the FCA, enjoy statutory immunity from prosecution? If not, the insurer in this case should jolly well initiate legal action as a matter of fundamental principle. But even that is no guarantee of justice.

    I am reminded of a case a few years back in which a woman had clearly and deliberately failed to declare on her application for a CI policy with Scottish Provident the fact that she had recently been diagnosed with a medical condition that would have resulted in her application being either rejected or accepted on terms very different from ordinary rates with no restrictions. Yet the court (with whom the matter finally ended up) directed that the insurer must pay her claim in full anyway. What is the value of contract law if either the FOS or a judge can arbitrarily overrule it and, in this case, force an insurer to pay a claim in the face of a blatantly false declaration? It’s an open charter to commit fraud. Not that that’s anything new ~ countless CMC’s are aiding and abetting it every day of the week and the powers that be seem to be entirely unconcerned about it. Is it any wonder that more and more people just can’t wait to get out of this industry?

  7. FOS have been acting in this nanner for years ! FOS is a Consumer Champion and firms are suffering ! Not just from the numerous obsured decisions coming out the “Service” but through escalating PI costs ! PI insurers assess risk and calculate a premium primarily based upon the policy wording they provide and the activities of a firm. How can an insured assess risk where the Obudsman regularly ignores the contract .. Apply the law FOS !! that’s fair and will reduce PI costs for firms !!

  8. ….and, of course, every decision that increases future risk for advisers and insurers potentially pushes up the price of policies and advice. The FOS makes our job Hobson’s Choice in some respect i.e. do we recommend a policy and risk a mis-selling complaint or do we avoid a recommendation and risk a claim for NOT providing proper protection?

  9. FCA asked for examples of FOS not taking into account FCA guidance – I hope they’re reading this.

  10. Douglas Baillie 16th June 2015 at 9:11 am

    It is about to get worse as claims management companies (CMCs) routinely send out threatening and highly legalistic demands for compensation, when in many cases such claims are totally disingenuous, vexatious and without merit.
    The CMCs then completely ignore the IFAs attempt to resolve matters and use FOS as a free of charge (to them), clearing house, leaving the beleaguered IFA to pick up the costs, irrespective of the eventual outcome.
    I have also seen FOS failing to demand documented proof of ‘bad advice’ and instead relying on the word of the complainer or their agent. It is a bit like hearing the unsubstantiated case for the prosecution and denying the defendant any right of reply.
    The word ‘adjudicator’ derives from judgement, which in turn infers balance and fairness.
    I also have a number of serious concerns about the background, experience and relevant qualifications of FOS adjudicators and Ombudsmen, particularly when it comes to ‘judging’ complex pension transfer or pension switching cases.

  11. Stewart Duncan ~ I know an adviser (whose name it’s not my place to post here) who repeatedly (in writing) recommended life cover to a client who subsequently died (without it) and his widow then complained against him for negligence. It was a familiar tissue of lies. Yet neither the FCA or the FOS seem remotely concerned about this pernicious trend.

  12. There is a more worrying part to all this, and a huge part that FOS, FCA and in part FSCS have to play in this…….. PI !!!

    I remember Sants shouting from the roof tops he cant see why PI costs should increase from the regulators actions at the time (forget in what context now, but its irrelevant anyway).

    The very real fact is PI companies will look at this as justification to increase premiums, make further exclusions etc etc etc

    I not sure about the rest of you but since RDR my PI has increased 150% !!! and believe me, I don’t get involved in high risk stuff its pretty much all, of the peg.

    Sorry Peter, for kind of hijacking your article, but myself and people (IFA’s) I speak to do have real worries about PI cost, cover, and will it pay out if it needs to, and all these inconsistencies from FOS and the regulators do a lot of damage

    It does seem at the moment that there is a very high chance FOS will side with a claimant as it is, now if its being reported “ignoring” the law as well…… PI companies will be rubbing their hands !

  13. Douglas Baillie 16th June 2015 at 2:30 pm

    You are right about the PI insurers, who are already seeking to deny cover, change policy terms and conditions with more and more added exclusions, and to impose eye watering excesses to such an extent that within the context of capital adequacy, it would take little more than one or two unfair adjudications to see the end of many many IFAs.
    A case in point is where an investor seeks advice to self invest his pension into cash on the basis that “Its’ my money and I will decide what i want to invest in”. He then goes off of his own volition, without the advice of the original adviser, and purchases an unsuitable investment (like Harlequin or Green Oil etc) via another adviser.
    The investment fails, and the investor complains to FOS who uphold the complaint as the original adviser ‘should have known’ what the client intended. The CEO of the FSCS has also confirmed that he supports this decision.
    This falls outwith PI insurance as the investment is unregulated, and is excluded.
    Game set and match to the FCA, FOS and the FSCS.

  14. Julian Stevens 16th June 2015 at 3:00 pm

    One idea, perhaps, might be for insurers ~ all of them ~ to change their IP contracts to state that the benefit is payable for a maximum of 12m but that, as the end of that period approaches, the policyholder may apply for the benefit to be payable for up to a further 12m without having to go through another waiting period. A one year rolling contract.

    That way, given that all claims are subject to medical evidence, there can be no ambiguity. The insurer could, in theory, tell the FOS that the claimant has failed to submit a fresh claim or at least failed to meet the requirements for that claim to be considered. Or even failed to apply for the policy to be renewed for a further year.

    Thoughts anyone?

  15. Julian that is quite a sensible suggestion but why aren’t the IP insurers sticking together and coming up with their own solutions?

  16. 800 years of Magna Carta as nothing in the face of FOS.

  17. Julian Stevens 17th June 2015 at 5:27 pm

    MJ ~ Maybe they will. In the meantime, the insurer in this particular case ought to be investigating the viability of a legal challenge to the FOS. How can the FOS be allowed to override what’s in a legal contract?

  18. Mr Baillie doth protest too much, methinks. If he’s either of the currently-approved Douglas Baillies, let’s look at the restrictions on his FCA authorisation (ref 187675):

    “… the Firm must:
    1. Immediately terminate its written appointed representative agreement dated 30th October 2012, with its appointed representative The Pension Specialist Limited (FRN 551831) so that The Pension Specialist Limited is no longer permitted to conduct any regulated activities on its behalf;

    2. Conduct a review of the suitability of advice for pipeline customers. These are customers who, following advice received by The Pension Specialist Limited, and where either no further steps have been taken, or, remain in the ceding scheme and have not transferred to a SIPP, or, have had funds released from ceding pension schemes and that are now held in cash within their SIPP (the ‘pipeline business’). Where, following the review, the original advice given to the pipeline customers is deemed unsuitable, the Firm must take reasonable steps to provide these customers with advice that is suitable; and

    3. Not in any way dispose of, deal with or diminish the value of any of its assets without the prior consent of the FCA…”

    If we re-read his posts in the light of this, we might place a different weight on his contribution to this debate.

  19. It would be useful if Peter Hamilton could give the FOS case reference which appears on their website for this as I don’t like commenting without reading the decision first.
    Can you please Mr Hamilton?

  20. Philip Castle 6th July 2015 at 1:34 pm

    I have read the FTAdviser article on Friday which Peter hamilton appears to be referring to which went to the High Court in May and the FOS decision overturned. I can’t find the Judges summing up or anything at present and the FOS decisions were before they started publishing them on their website so they are saying they will not respond with them until the FOI request date ahs expired which is 5th August. It would be very much appreciated if Peter Hamilton can make contact on this as I for one want to know more about this case and as Fraud was been confirmed by the Judge, with the case defended by the FOS when Cirencester refused to pay, what the CPS is now going to do about this and whether tehy consider a criminal prosecution in the public interest and if not, why not.

  21. Philip Castle 6th July 2015 at 6:20 pm

    I have now seen the written judgement…. I can’t see any copyright on it…. My understanding is that two adjudicators found in favour of the Cirencester Friendly Society and it was then referred at the fraudsters request (I use the judges words) to an Ombudsperson….
    That claim was rejected by the claimant on 6 December 2007, but on about 2 January 2008 Mr Parkin complained to the Financial Ombudsman Service that the claimant had wrongly rejected his claim for income protection and had cancelled the contract from the start. The role of the Financial Ombudsman Service is statutory. There is a statutory disputes resolution procedure established by section 225 of the Financial Services and Markets Act, 2000. Having gone through the Ombudsman Service process (insertion here by me Phil Castle to remind readers that two adjuicators had decliend the complaint in favour of the Cirencetster), on 10 September 2010 a lady called Melissa Collett, who was the, or an, Ombudsman in the Financial Ombudsman Service, made a decision upholding Mr Parkin’s complaint. The decision is plainly based upon fraudulent assertions which had been made by Mr Parkin in the course of the consideration by the Ombudsman of his particular circumstances, the frauds in particular being that he suffered from Myalgic Encephalopathy, which he did not, that he was unable to work, which he was not, and that he had not dishonestly, but, as it were, inadvertently, failed to disclose his previous cannabis use.
    I have had other posts asking for more information on this case censored by other publications at the request of persons unknown. All we as advisers want is the TRUTH, why are we blocked at every turn by?

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