Aviva to challenge FOS decision amid legal uncertainty

Aviva has been allowed to judicially review a Financial Ombudsman Service decision after the adjudicator failed to give sufficient explanation as to why they departed from the relevant law.

Speaking at the Royal Courts of Justice in London yesterday, Justice Jay said he was allowing the appeal on a technicality, as he was not convinced the FOS’s decision was flawed.

He also expressed concerns that how the law applied to the decisions of an Ombudsman should be made clearer.

The case

A husband and wife took out a 27-year joint life policy in 2006, with terminal illness benefits and an £127,000 assured sum, paying a single premium to insure against either partner dying before the other.

The husband went on to develop a rare, early-onset form of dementia at some point after 2008.

His change in personality had led to the marriage breaking down. He contacted Aviva in August 2013 to cancel the joint policy after getting written consent from his wife.

He was referred for psychiatric assessment later that year after his family sought medical advice in light of his personality change.

Two months later, he applied to Aviva for a single life policy with terminal illness benefit. The assured sum was £500,000.

However, he did not disclose to the provider that, since September, he had been talking to his GP about mental health issues he may have suffered from.

Aviva’s cover under the policy started that November. Later in the month, his terminal form of dementia was diagnosed.

Aviva’s response

Aviva argued it would not have issued the policy had the husband disclosed his situation fully.

This drew a complaint over both the single and joint life policies from relatives.

The FOS ruled the husband “could not be expected to make the same disclosure that [one] would expect a reasonable person to make” because of his illness, upholding the claim regarding the single life policy.

Aviva challenged this ruling, saying the non-disclosure was not innocent but negligent.

However, this was rejected by the Ombudsman, who said Aviva should allow the client to reinstate his policy and consider a claim as long as he paid any outstanding premiums.

When Aviva said it was preparing to launch a judicial review of the decision, FOS admitted “more detailed reasoning could have been provided for the fair and reasonable conclusion reached in the decision.”

Though FOS stood by the decision, it agreed to a quashing order.

Unclear law

In a ruling yesterday on whether the FOS decision should be judicially reviewed, Justice Jay said he sympathised with the FOS’s ruling.

He said: “I am not driven to conclude that it would be outrageous to hold an insurer to its contract in the unusual circumstances of a case such as the present.”

However, he added he was bound by previous case law that an Ombudsman “is free to depart from the relevant law, but if he does so he should say so in his decision and explain why.”

Justice Jay says: “The FOS was right to concede at the earliest possible stage that the Ombudsman’s determination was flawed for inadequacy of reasons. The Ombudsman did not follow relevant law, guidance and practice. Although she was not required to do so, it was incumbent on her to explain why she did not.

“It follows that a quashing order should be made in this case.”

Jay said the relationship between law and how FOS is allowed to make decisions should be clarified.

“This application for judicial review must be allowed, but only on the basis expressly conceded by FOS. The Ombudsman’s determination of 16 November 2016 must be quashed.

“I do have personal concerns about a jurisdiction such as this which occupies an uncertain space outside the common law and statute. The relationship between what is fair and reasonable, and what the law lays down, is not altogether clear.”

The complaint will now have to be redetermined by FOS.