The judgment in R (on the application of Bluefin Insurance Services Ltd) v Financial Ombudsman Service Ltd was handed down yesterday and, in a ruling that will be welcomed by D&O insurers, the High Court has held that the Financial Ombudsman Service did not have jurisdiction to determine a complaint relating to cover under a D&O policy.
The insurance broker arranged D&O cover for a company which is now in administration. Mr Lochner was a director of the company and an insured person under the D&O policy. The cover expired in September 2008. In 2011 Mr Lochner made a claim under the policy which was rejected by the D&O insurers as they had not been notified prior to expiry of the policy. In 2012 Mr Lochner made a complaint to FOS that the insurance broker had failed to notify his claim to the D&O insurers. The broker denied the claim and also challenged FOS’ jurisdiction to determine the complaint.
In May 2013 FOS issued its decision that it had jurisdiction to investigate the complaint. The broker sought to bring a claim for Judicial Review of the decision. Permission to bring the claim was initially refused by the court but, on an oral renewal of the application, permission was granted in February 2014.
Judicial Review Challenge
The broker’s challenge to FOS’ decision turned on whether Mr Lochner was a “consumer” and therefore eligible to make a complaint to FOS. FOS’ jurisdiction is governed by the Financial Services and Markets Act 2000 and the rules on who is eligible to bring a complaint are set out in the Dispute Resolution: Complaints (DISP) section of the FCA’s Handbook. DISP 2.7.3R provides that “An eligible complainant must be a person that is…a consumer”. “Consumer” is defined in the Glossary to the Handbook as “any natural person acting for purposes outside his trade, business of profession”.
The court has held:
- The question of whether the FOS had jurisdiction over the complaint was a decision for the court to take.
- When deciding whether Mr Lochner was a “consumer”, and therefore able to bring a complaint, the question was whether he was a consumer at the time the complaint was made (not when the D&O policy was taken out or the date of the act or omission complained of).
- Mr Lochner had not been acting as a consumer when making the complaint and FOS did not have jurisdiction to determine the complaint. The complaint was that, as a result of the broker’s failure to pass on the notification to the insurers, Mr Lochner was exposed to loss arising from the claim brought against him for wrongful acts when acting as a director. Those acts were in the course of his trade, business or profession and, when looking at the purposes for which he was acting when making the complaint, there was no proper basis on which FOS could have concluded that his purpose was outside his trade, business or profession.
- The judge rejected the argument that a D&O policy, being a group protection policy, should be regarded in the same way as other group protection policies, such as a private healthcare policy. Such policies are to provide protection for the private interests of members of the scheme and a complaint made to FOS in such a context could well be for a purpose outside a person’s trade, business of profession.
This decision will come as something of a relief to D&O insurers for whom the extension of FOS jurisdiction to complaints from D&O insureds would have had considerable implications. The related prospect of policies of D&O insurance then falling more generally within the ambit of consumer regulation had Mr Lochner been deemed to be a “consumer” for the purposes of the DISP provisions could also have represented considerable cost for insurers.
The decision, in particular the consideration of the definition of “consumer” for the purposes of the DISP provisions, will also be of broader relevance to other regulated entities in offering guidance to the courts’ approach.