Extending the power of Complaint

At midnight on 30 November 2001, the Financial Ombudsman Service (FOS) became the single ombudsman for complaints about financial products and services. It replaced eight existing dispute resolution schemes, including such heavyweights as the Personal Investment Authority and the investment and insurance ombudsmen.

The FOS is said to be the largest ombudsman scheme in the world, with a budget of about £20m, 15 to 20 ombudsmen and 350 to 400 staff. The purpose of the scheme is to provide a speedy and informal resolution of disputes by an independent person, although funding is by levies on the financial services sector. The scheme was set up by the Financial Services Authority (FSA).

Its remit is throughout the financial services sector and insurance professionals will find many instances of involvement. One example is professional indemnity. Policies have traditionally required an ombudsman extension to confirm coverage under the policy. This is because an award can be construed differently to legal liability, which is in many insurance clauses. However, such an extension will restrict coverage to the maximum that can be awarded.

Nonetheless, if he considers that fair compensation requires payment of a larger amount than £100,000, the ombudsman may recommend that the firm pays the complainant the balance. This can create friction, because in a difficult case, the firm and its insurers may feel that the extent of the award is too great. This is magnified when one considers that an ombudsman determines the complaint by reference to what he considers to be fair and reasonable.

The new ombudsman service, in contrast to some of the schemes it replaced, is compulsory for regulated firms and is open to indi-viduals, and to businesses with an annual turnover of less than £1m.

Complaints handling
The ombudsman has jurisdiction where a customer fails to obtain satisfaction from a firm's internal complaints handling arrangements, provided no more than six months have passed since a final decision letter was sent to the customer.

The jurisdiction also excludes cases where more than six years have passed since the event the customer is complaining about or, if later, it is more than three years since the customer first became aware of the problem. The monetary extent of any award is £100,000.

While most cases are likely to be within the compulsory jurisdiction, there is also a voluntary jurisdiction. This applies where, under the rules to be made by the FSA, the complaint cannot be dealt with under the compulsory jurisdiction and the customer wishes to use the ombudsman. This could be, for example, because the complaint is not against a person authorised under the Financial Services and Markets Act in its own right. Costs can also be awarded, but only against a customer whose conduct was improper or unreasonable, or if he had been guilty of unreasonable delay.

The determination is by reference to what is, in the ombudsman's opinion, fair and reasonable in all the circumstances. There is usually a process whereby the ombudsman makes various provisional assessments which he issues to the parties for comment. When he finally determines the case, he provides a written statement to both parties giving reasons, and requiring the customer to notify him in writing, before a date specified, whether he accepts or rejects the determination. If accepted, it is binding on both parties, otherwise it is treated as rejected.

It is in the area of determinations where the parties disagree that there is most difficulty. In non-complex cases a free service, which does not need lawyers, should lead to a determination spelling the end of the matter. However, cases can be complex, with conflicts of evidence that are hard to resolve. There can also be difficult areas of law involved.

Judicial review
While parliament considered the FOS, at one stage there was going to be provision for appeals on a point of law. However, this was jettisoned so that an "appeal" by a firm may effectively be possible only by judicial review.

In a case decided by documents only, and even though there are provisions to enable the ombudsman to obtain information which can be enforced by the court, the complex case could drag on longer if judicial review is undertaken. There is also extra expense.

In spite of this, there has always been scope for an ombudsman to ask the parties to attend a hearing. This is happening more now because of the impact of the Human Rights Act, which requires a hearing of a civil complaint within a reasonable time before an independent tribunal. But there is no cross-examination of witnesses.

Assessment team
That is not to say that the previous ombudsman schemes did not perform a useful function and that innovations by the FOS are not a good way forward.

For small cases, even after Lord Woolf revolutionised the civil court system, this service is less costly and user friendly. Recently, the FOS established an assessment team to deal with complaints where there is a good chance of achieving a swift resolution by means of mediation, rather than a full investigation. In addition, case studies are published, so that patterns can be seen in determinations. This is best seen in recent decisions regarding endowments.

Still, the jury is out on how the new rules applying to the whole service will work out in practice, and on how effective it will be in determining large and complicated cases. This is an area insurers will be looking at closely in the coming months.

The FOS is in its early days, but it is vital that insurers perceive that cases are being determined fairly so that they have confidence in the system. n

Andrew Davis is a senior partner at Fishburn Morgan Cole