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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.



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There are 16 comments at the moment, we would love to hear your opinion too.

  1. This is ridiculous – it is called Uberrimae fidei. He failed to disclose a salient fact – that is fraudulent. He was pretty stupid to stop his earlier policy as well. That’s not Aviva’s fault. Wonder who the adviser was….

    • The logic of the judge is well explained though, which then puts in to question similar cases where advisers would have been justified in applying for a judicial review, but simply don’t have deep enough pockets to do so.
      Effectively, the Judges decision is like saying to the FOS, if you are going to stray from the law, your reasoning for doing so has to be clearly stated and if it is NOT, then ANY judicial review is likely to send you back to redo your homework and re-justify your decision and until you can, the provider or adviser could keep asking for a further judicial review until you give a true, fair and balanced reason for straying from the law other than just feeling sorry for the complainant (as I suspect was the case here)

      • This is a very specific case though and I doubt it is very different from the ‘average adviser complaint’.

        If you are unhappy with a FOS decision you can seek an independent legal opinion on how strong your case would be for a JR. However unless there are pretty extreme circumstances such as this story, I doubt it would be worthy.

    • Non disclosure indeed. Crazy how some cases become so complex when in fact this one seems (haven’t seen the file) simple. Aviva shouldn’t be held to account in my humble.

  2. so is this now a ‘diminished responsibility’ get out clause

  3. Surely if there is diminished responsibility there is an argument over whether he was in fact capable of setting up a valid contract. If his responsibility is diminished enough to result in him giving incorrect answers to questions, then surely it is diminished to the same standard in respect of understanding and setting up a contract. Either way shouldn’t the contract be null and void.

    • In law yes but it also then becomes questionable as to whether he had the capacity to terminate the earlier contract too. I think this is a pretty complicated case and one where the decision of a court could also go either way and to some extent, returning the case to the FOS to reassess and re justify is the right thing at this stage OR they could of course just choose to put it in the too difficult to decide position and ask a judge to decide, but at nil cost to the complainants who deserve a JUSTIFIED answer from either the FOS or a court as much as AVIVA do.

  4. Interesting to say the least, especially when it comes to justification of not allowing a 15 year longstop defence!

  5. Never thought I would say it but……..well done Aviva

  6. Who advised the wife to agree to the cancellation? She should have maintained the policy. A

    Assuming we have all the facts before us, I can see both sides of this but the FOS didn’t explain why “utmost good faith” no longer applies in their decision making.

  7. If non-disclosure is allowed on grounds of reduced mental capacity, imagine the extra underwriting hurdles needed to check all applicants are of sound mind!
    A more rational, and still humane decision would have been to rule both his actions to have been subject to lack of legal capacity and pay the £127k less the return of single premium…and quickly, as he’s going to die soon and the family, no doubt despite the divorce will be getting roped into dealing with the practicalities of his deteriorating condition. (I doubt an advisor would have been involved, but if so, doesn’t look good!)

  8. He applied to Aviva in October 2013, Evan. i.e. to months after he cancelled the old policy.

    The Consumer Insurance (Disclosure and Representations) Act 2012 had been in force for six months by then and effectively abolished utmost good faith in respect of protection products.

    The FOS position on this is explained at

    In this instance, the consultations with the GP commenced the month before the policy was applied for. The question would seem to be related to how clear the question was.

    But it does seem fishy that he cancelled the old policy in August, started consultations with the doctor in September applied for a new policy with a sum assured about four times as large in October, put it on risk in November and was then almost immediately diagnosed with a terminal condition.

  9. I think for the sake of everyone’s premiums, we need this FOS decision overturned or else protection. Its absolutely ludicrous!

  10. Sorry…or else protection sales are dead in the water

  11. This is a perfect example of how the FOS decision-making goes beyond the law. The judge stated:

    “Had these been legal proceedings brought by Mr and Mrs McCulloch against Aviva in the County Court, Aviva’s case would have succeeded.”

    The judge also makes quite a few comments about the joint life policy and how the FOS might want to approach it when they re-determine it. In essence he says that FOS COULD order Aviva to pay out on it on a ‘fair and reasonable basis’ subject to detailed reasons why that are not irrational or perverse. Reading between the lines, he indicates that it would be difficult to do so in this case given it clearly departs from the law. If they go that route and the reasons aren’t good enough then it will be open to a further judicial review. He noted also that the maximum FOS award was £150k, so that was Aviva’s upper limit given the client would fail if they pursued the higher amount in court.

    Lastly, as indicated in the article, the judge expressed reservations about the FOS’s ability to determine matters outside of normal course of law. His parting shot was this:

    “It might be said that this jurisdiction is penumbral because its shadows cannot be illuminated.”

    That’s a worry for all advisers subject to its vicissitudes. It really does need reforming.

  12. Perhaps parliament needs to look at the power FOS has to change the law as it goes along.

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