The High Court quashes the decision of the Financial Ombudsman Service (FOS) amid dispute about how the “the fair and reasonable” approach should be applied.
This is the case which has been described under the heading "morality can trump law" and as such has caused some consternation in legal circles. The case is that of R (Aviva Life and Pensions) v Financial Ombudsman Service (2017) EWHC 352 and it concerned Aviva declining terminal illness claim on the grounds of non-disclosure.
The facts in the case were as follows. On 12th November 2013 Mr McCulloch took out a single life assurance policy with terminal illness benefit with Aviva. In his application he did not disclose that he had been consulting his GP about possible mental health issues since September that year and that he had been referred to a consultant psychiatrist and for a CT scan because of his family’s concerns about changes in his personality. Sadly Mr McCulloch’s condition was diagnosed as terminal following the CT scan and by December 2013 he was in a hospice at which point his family made a claim under the policy. Aviva declined the claim on the grounds of misrepresentation and voided the policy.
A complaint was submitted to the FOS. The FOS accepted that, if the case went to court, Aviva would have been entitled to void the policy on the grounds of misrepresentation; nevertheless it made an award in Mr McCulloch’s favour on the basis that, given the illness which he was suffering, he could not have been expected to make the same disclosures that a reasonable person would be expected to make.
Unsurprisingly Aviva sought judicial review and an order to quash the FOS’s decision. It is known that the FOS makes decisions on what is a “fair and reasonable” basis. Aviva argued that in making a decision on this basis the FOS should still have taken account of relevant laws, regulations, codes of practice and industry standards. The Judge agreed that FOS should have taken account of all the laws and regulations, however he still found that FOS was entitled to depart from those legal guidelines, provided it gave reasons why.
Aviva also argued that the FOS decision was irrational and outrageous and that no sensible person could have arrived at it. But the Judge disagreed with this on the grounds of the unusual circumstances of the case. However, the Judge decided that, while the decision itself may not have been unreasonable, the problem was that it was not supported by careful reasoning. For this reason the FOS decision was quashed and the case was remitted back to the FOS for a fresh determination. We await to see what this new determination will be.
It seems quite extraordinary that the Judge has determined that the FOS is not bound to follow the law and regulations when deciding what is fair and reasonable, as long as it provides detailed reasons for any departure from the said law and regulations. Clearly we have not reached the end of this case yet, but life offices must be concerned about the ease with which the Ombudsman apparently discarded the well-established legal principles concerning disclosure and misrepresentation in favour of what he considered to be fair.
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