A judicial review has clarified the right for advisers to make time-limited cash offers to claimants as an alternative to taking complaints to the Financial Ombudsman Service.
The case originated from a dispute involving an insurance broker who offered a claimant £3,000 – half the amount claimed – if they accepted the offer within a month.
The broker’s insurer says it considered it probable, but not certain, that the complaint would fail and made the offer to avoid the expense of an FOS complaint.
The customer declined the offer and complained to the FOS, which rejected the complaint but still sought to award £3,000 as it considered the time-limited offer inappropriate.
The FOS’s final decision letter said: “It is inappropriate for firms to make offers which are, in effect, conditional upon not complaining to the FOS.”
Collegiate Claims legal director Martin Archer says it was concerned the decision would undermine its ability to reach fair compromises.
The firm sought a judicial review of the decision on the basis that the FOS only has power to award compensation where a complaint has been upheld. The FOS did not defend the judicial review and the award of £3,000 was set aside.
Solicitor Harriet Quiney of lawyer Fishburns, which instructed on the case, says: “This case confirms where a firm considers its rejection of a complaint will probably be upheld but where there is some doubt, it is appropriate to offer compensation reflecting not only the customer’s loss but also the customer’s chances of having his or her complaint upheld and the saving which will be made by the firm and its insurers in not having to defend the complaint.
“It is reasonable for these offers to be time-limited as once the firm is forced to defend the complaint, part of the original rationale for making the offer will have been lost.”
FOS spokeswoman Emma Parker says: “This case has been a useful clarification for us.”