You need to be a policyholder to claim compensation
This is certainly not true of the law generally. Indeed, keeping a policy may count against a claimant where prudent advice would be to ditch a wasting asset.
Any claimant is expected to mitigate his losses, that is, to make the best of a bad job. In the case of the misselling of an insurance policy, a claimant who follows competent advice on what to do with the unwanted policy will not normally be negligent.
On the other hand, an adviser who advises that a client hangs on to a policy which should otherwise be sold or surrendered, just for the sake of possible compensation, usually will be negligent.
Equitable is culpable so the Government need not pay
This is the Government’s line and is echoed by some journalists. It ignores the principle of law that more than one person can be liable for the same loss.
Compensation, as a matter of law, is due to the consequences of unlawful conduct. An obvious example is care-less driving. More than one person can cause an accident. So it is here. Equitable is liable for having missold policies. Its salesforce was trained to give an impression of the strength of the with-profits fund which, unknown to them, was false.
It is liable for the consequences of those representations. The Government also had legal duties under EU and UK law. These were to ensure that Equitable only traded as a life insurance company with sufficient reserves. It failed to do so. It is liable for the consequences of that failure. Policyholders have (or rather had see below as to time bars) two different claims one against Equitable and another against the Government.
The irony is that the Government, through the FSA, used its influence to minimise claims against Equitable for misselling. Hence the dismissal of “Penrose” allegations by the FOS in March 2005 and the promotion by the FSA of the compromise scheme in 2002. New claims against Equitable will be time-barred now. Having helped Equitable escape paying full compensation, the Government is in no position to blame Equitable now.
Compensation equals policy cuts
Many clients consulting us for the first time think that the cuts they suffered starting in July 2001 represent their loss. The basis for compensation in law and adopted by the Parliamentary Ombudsman in her report is that policyholders should be compensated for the consequences of the wrong done.
So, in many cases, it will be the answer to the question: what would be my position if I had not been misadvised about Equitable’s true finan cial state when I bought my policy (or made further contributions)? That, in each case, is an individual question. Every investor’s reaction to the real position would be different. We do not know how the Government will structure a compensation scheme. We shall see.
Equitable policyholders are rich so are undeserving We know this is untrue. Many of our clients are of very limited means. The unpleasant aspect of this argument is that it is advanced at all. Equality under the law means the rich are treated the same as the poor and vice versa. The law is there to be enforced for everybody, not just those who attract sympathy, although most policyholders do. Can policyholders’ families claim after death? The general law is that a claim of this kind passes to the next of kin or other beneficiaries under the normal rules with the rest of the deceased’s estate. Widows and widowers with spouses’ benefits in annuities may have a claim of their own. Any Government scheme which is limited to the living will fail the “reasonableness” test outlined below. Does the Government have to do anything at all? In theory, no. So the Government may decide to tough it out and not set up a compensation scheme. I doubt if that is politically possible. The Government’s response is constrained by a test of “reasonableness” imposed by administrative law generally.
We can therefore expect a scheme which is as stingy as can reasonably be devised. A reasonable scheme in our view should pay attention to normal principles of compensation, as outlined in this note. What should policyholders do now? Sit tight to see what the Government does. Gather together your paperwork and make a written note of your recollections of the sales process and advice received. The time may soon come when those records will be crucial.
If, within six months, the Government does not come up with a scheme you think is reasonable or no scheme at all, take legal advice.
Robert Morfee is partner at law firm Clarke Willmott