In recent months the Financial Ombudsman Service (FOS) has come under the spotlight over its decision to exercise jurisdiction over a complaint in relation to a broker's alleged failure to notify a claim under a D&O policy. The key issue that has arisen is whether a director may be considered a “consumer” for the purposes of submitting a complaint to the FOS and thus qualify as an “eligible complainant.”
The broker, Bluefin Insurances Services Limited, was recently granted leave to judicially review a FOS decision over a complaint made against it by a director of a company. The basis of the challenge is that the complainant director is not acting as a "consumer" and therefore not entitled to complain to the FOS. In his complaint to the FOS, the director complained that Bluefin failed to notify his claim under a D&O policy. The policy was taken out by the company who formerly employed the complainant as a director. The FOS has jurisdiction to deal with complaints made by "eligible complainants,” as defined in DISP 2.7.3R of the Financial Conduct Authority Handbook and includes a "consumer". A "consumer" is defined as “any natural person acting for purposes outside of his trade, business or profession”.
Bluefin sought leave to seek a judicial review of the FOS’s decision to deal with the complaint, arguing that the complainant director could not possibly fall under the definition of "consumer" since his complaint related to a D&O policy taken out by a company. Furthermore, the D&O policy covers directors accused of committing “wrongful acts” when acting as a director and not in some other personal capacity. Leave had, however, been refused in September 2013, Lang J finding that the FOS had correctly followed the relevant rules and guidance and that there was "no arguable error of law" in its interpretation of its terms of reference. However, Bluefin successfully appealed that decision in February 2014. Blair J granted permission to Bluefin on the basis that its case was "sufficiently arguable.” He identified three issues which would "benefit from more consideration" via judicial review:
- Which of two tests should the court apply when considering the issue of FOS jurisdiction? Is it (i) a matter of law for the court to decide having regard to the relevant rules, or (ii) a question of whether the FOS’s decision was so unreasonable that no reasonable person acting reasonably could have made it (i.e. the Wednesbury reasonableness test)?
- At what point in time should the court decide whether the complainant was acting as a consumer? For example, should this be when the complaint was first made to the FOS, or when the FOS made its final decision as to its jurisdiction?
- Whether a D&O policy should be considered as a consumer transaction?
The court’s findings over the final issue will be of particular interest to insurers. The court will be faced with forceful argument that D&O insurance is taken out by a commercial customer for business purposes and covers liabilities that arise from directors` professional duties. However, FOS can be expected to argue that D&O policies serve to protect directors against personal liabilities and this can be a prime motivation for taking them out. For example, a key element of D&O insurance is to cover defence costs arising from regulatory investigations against directors, which can become critical matters of personal liberty and livelihood for directors. While the purpose of taking out the cover may be to protect directors from personal exposure, such liabilities only arise in a commercial context. It would perhaps be surprising if the FOS were allowed to exercise jurisdiction over such complaints.
Insurers and company directors alike will be keenly awaiting the outcome of the judicial review hearing, listed for November 2014.