A Financial Ombudsman Service's (FOS) decision that it had jurisdiction to hear a complaint by a director insured under a Directors' and Officers' Liability (D&O) insurance policy, has been reversed by judicial review.
R (on the application of Bluefin Insurance Services Ltd) v Financial Ombudsman Service  EWHC 3413 (Admin)
Bluefin Insurance Services Ltd (the Broker) arranged a D&O policy for Betbroker Limited (the Company) in 2007, underwritten by AIG Europe Ltd (the Insurers).
In 2011, a claim was brought against Mr Lochner, one of the directors of the Company, for allegedly dishonest misrepresentations in the course of fundraising on behalf of the Company. The Company was by this time in administration.
Mr Lochner sought personal protection under side A of the Company's D&O policy. Insurers declined cover on the basis of late notification of the claim leaving Mr Lochner to finance his defence out of his personal assets.
Mr Lochner made a complaint to FOS, alleging that the Broker failed to inform Insurers that he had made a notification of an earlier circumstance giving rise to a claim which, had the Broker acted correctly, would have led the claim to be indemnified under the D&O policy.
FOS consulted the Financial Conduct Authority Handbook and decided under DISP 2.7.3 R and the glossary definition of "consumer" that Mr Lochner was an eligible complainant because he was complaining on his own behalf and was a "natural person acting for purposes outside his trade, business, or profession". The FOS placed a lot of weight on the fact that he was facing a direct claim and that his complaint concerned a loss of policy benefits (i.e. coverage of defence costs) that would go to him personally rather than to his former company.
The Judicial Review
The Claimant sought a judicial review on the grounds that FOS did not have jurisdiction to entertain Mr Lochner's complaint. This was mainly on the basis that whether the director was a "consumer" was a matter of precedent fact and was for the Court, not FOS, to determine.
Wilkie J agreed (and also decided FOS had misdirected itself in law) and went on to decide that Mr Lochner could not be eligible as a “consumer” for the purpose of FOS jurisdiction because the complaint was “inextricably linked” with his trade, business or profession and his personal liability for alleged wrongful acts arose wholly out of that connection.
Interestingly, both parties to the judicial review appeared to accept that the decision would have been different if Mr Lochner's spouse (who was also an insured person under the D&O policy) made the notification as the subsequent complaint would be outside her trade, business or profession.
Mr Justice Wilkie also commented that other types of group protection policies, such as company private health insurance, are not to be regarded in the same way as D&O policies, and may well fall within FOS's jurisdiction, because they protect the private interests of individuals outside that person's trade, business or profession.
The judgment also reminds us that the classes of "eligible complainants" for FOS can extend beyond consumers to microenterprises, charities and trustees (depending on levels of turnover, annual income, net assets or number of employees).
This case sets a helpful precedent for D&O Insurers who might otherwise have been concerned about the implications for their businesses had FOS jurisdiction, and the accompanying weight of consumer regulation, extended to D&O policies.