A 2014 High Court decision has significantly curtailed the Financial Ombudsman Service’s (“the FOS”) jurisdiction to consider complaints relating to Directors and Officers (“D&O”) liability insurance policies. This article examines its impact.
In R (on the application of Bluefin Insurance Services Limited) v Financial Ombudsman Service Limited (“Bluefin v FOS”), the complainant was a director of a company called Betbroker Limited, which was the policyholder of a D&O insurance policy. Claims were made against the complainant in respect of alleged dishonest misrepresentation by him, in his capacity as a director, in the course of fund raising on behalf of Betbroker. The crux of the complaint referred to the FOS was that the insurance broker had failed to pass on to D&O insurers a notification said to have been made by the director, resulting in the insurers refusing to indemnify the claim.
For the FOS to consider a complaint, the complainant must be “eligible”. The primary category of ‘eligible complainants’ are consumers, who are defined in the DISP Rules as “any natural person acting for purposes outside his trade, business or profession”.
The FOS had concluded that it did have jurisdiction to consider the director’s complaint on the basis that he was complaining on his own behalf and not on behalf of the company and, so satisfied the definition of “consumer.” Bluefin sought permission to judicially review this decision. On review, the Court disagreed with the FOS, concluding that the complaint was inextricably linked with the complainant’s trade, business, or profession, in respect of which he was potentially personally liable for alleged wrongful acts. The subject matter of the complaint was wholly concerned with loss arising from a lack of insurance in respect of liability which had been incurred in a professional or business capacity.
The Court’s Decision
In reaching its view the Court considered the nature of D&O policies, accepting Bluefin’s submissions that D&O policies promote corporate interests, cover business and professional liabilities and could be distinguished from other forms of group insurance such as private health insurance and income protection which guard against risks which are intrinsically private.
The Court reached its decision on the basis of the particular facts of the case and the judgment is not a ruling which means that consideration of all complaints relating to D&O policies fall outside of the FOS’s jurisdiction. For example, D&O polices usually provide cover for spouses and, depending on the facts, a spouse may have satisfied the definition of “consumer” and thus be eligible to complain to FOS. That said, it does represent a departure from the current practice of the FOS.
What this means
Whilst providing an important avenue for consumer redress, the FOS’s jurisdiction is much broader than that of a court with the jurisdiction to award compensation where a court could not. The FOS is required to determine complaints by reference to what is, in its opinion, “fair and reasonable” in all the circumstances of the case. This means there is no obligation to follow rules of law. Whilst, then, the FOS is to take relevant law and regulations, regulators’ rules, guidance and standards, codes of practice, and, where appropriate, what it considers to have been good industry practice at the relevant time into account, it is not bound by them. The net result is a very wide discretion indeed (and resulting uncertainty for insurers), and one that it is extremely difficult to challenge.
This case illustrates the importance of firms considering for themselves whether every element of the FOS’s jurisdictional requirements are met (and not relying on the FOS to do so) when a customer refers a complaint to the FOS.
A final point worth noting is that many commercial insurance policies (including D&O insurance policies) contain standard form provisions in respect of complaints which usually mention the FOS. Insurers should give consideration to the wording of such standard provisions to ensure it cannot be argued that the insurer has waived any right to contest the FOS’s jurisdiction where appropriate.
Whilst not excluding every complaint under a D&O policy from the FOS’s remit, Bluefin v FOS is likely to restrict the FOS’s jurisdiction in this area significantly. Insurers need to be aware of the decision when preparing policy wording and also when handling complaints relating to D&O policies.