some jurisdiction issues in insurance cases

The jurisdiction of the Financial Ombudsman Service (the matters we can and cannot look into) is defined in the rules under which we operate. These rules are made (or approved by) the Financial Services Authority (FSA) and published in its Handbook of rules and guidance in the section, Dispute resolution: Complaints (DISP).

Our jurisdiction is a broad one – but not quite as broad as some consumers believe. We do sometimes have to explain that we are unable to deal with a particular complaint – often because the firm concerned is not regulated. When we are unable to deal with an insurance case, it can sometimes be because the consumer bringing the complaint to us is not the beneficiary of the insurance contract that is the subject of the dispute.

Firms are also sometimes mistaken about the extent of our jurisdiction. But unlike consumers, they generally tend to think it narrower than it actually is. They will sometimes try to argue that a case is outside our jurisdiction when, in fact, it is not.

Insurance firms occasionally try to insist that we cannot look at complaints about underwriting matters, or where legal proceedings have been issued. These misconceptions are a legacy from the past. The Terms of Reference of one of our predecessors, the Insurance Ombudsman Bureau, precluded such cases. However, the FSA rules give us wider powers and such cases are not outside our jurisdiction. They are, however, among the types of cases that we can, under the rules, decline to deal with.

Two areas in particular that can give rise to more problematic jurisdiction issues are:

cases that involve group policies; and
commercial cases (where the event being complained about happened before the Financial Ombudsman Service gained its statutory powers on 1 December 2001).

group policies
We see plenty of cases relating to group Permanent Health Insurance (PHI) and similar policies, where the employer has taken out the policy for the benefit of its employees and one of those employees refers a complaint to us. Some insurance firms have tried to argue that we cannot investigate cases that involve group policies (even where the policy was taken out for the benefit of an employee) if the policyholder is a large company with an annual turnover of £1million or more.

Under our rules (DISP 2.4), an eligible complainant (someone who is able to bring their complaint to the ombudsman service) includes ‘a person for whose benefit a contract of insurance was taken out or was intended to be taken out’.

To decide whether a case is one we can look into, we need to assess whether the policy was taken out for the benefit of the individual who has complained to us. We do this by looking at the policy wording and the employment contract. If it is clear that any payments made by the insurer go directly to the employee, then we will probably conclude that the complaint is within our jurisdiction.

But where we find the employer is effectively reinsuring its own clear contractual liability to pay sickness benefits, or is merely protecting the business – for example, with a ‘key man’-type policy – then we might conclude that the complaint was not taken out for the employee’s benefit and is not one we are able to deal with.

The fact that individuals other than the person who complains to us might also benefit under the policy does not automatically exclude the complaint. We look carefully to see if there is a direct or indirect link between the payments made by the insurer and the payments the employer makes to the employee. If we are satisfied that the employer is contractually obliged to make payments to the employee only if the insurer accepts the claim – then we are likely to conclude that the complaint is within our jurisdiction. In such circumstances the policy was clearly taken out for the benefit of the employee.

Of course, if the employer has a turnover of less than £1million and is well-disposed towards its employee, it may bring the complaint to us in its own right as the firm’s customer.

commercial complaints
Firms are sometimes confused about whether we can investigate relevant new complaints about commercial policies. A relevant new complaint is one where:

the matter complained about occurred before the Financial Ombudsman Service effectively existed (that is, before 1 December 2001); but
the complaint was not made to us until after 1 December 2001.

Because the relevant predecessor scheme – the Insurance Ombudsman Bureau – was not empowered to consider commercial disputes, there is a statutory instrument that prohibits us from considering relevant new complaints unless the complainant is an individual and the complaint does not concern aspects of a policy that relate to a business or trade carried out by the complainant. This is in the rules at DISP 2.4.15G.

Some firms have interpreted this to mean that we cannot look at commercial complaints where the insured event (that is, the fire, the flood, the theft, etc) occurred before 1 December 2001. This is incorrect. The customer is not complaining about the insured event but about the firm’s decision on, or handling of, the claim. And if this occurred months after the insured event took place (as it may well have done) and, moreover, it was after 1 December 2001, then the complaint is properly within our jurisdiction. Provided the commercial complainant’s turnover is less than £1million, there should be no reason why we cannot investigate.

case studies – some jurisdiction issues in insurance cases

32/7
jurisdiction decision – group PHI policy – whether complainant eligible

XYZ Ltd held a group personal health insurance policy with the firm and offered health insurance to its staff. In July 2001, one of its employees (Mr W) made a claim under this policy, but the firm turned it down. When Mr W said he would take his complaint to the ombudsman, the firm told him the complaint was outside our jurisdiction. The reason it gave was that XYZ Ltd, not Mr W, was the policyholder, and XYZ Ltd had not given consent for us to consider the complaint.

Despite this, Mr W decided to refer his complaint to us.

complaint outside our jurisdiction
While firms do sometimes express a view to customers about whether or not they think a complaint is within our jurisdiction, this is ultimately a matter for us to determine. In this particular case, we decided that the complaint was indeed outside our jurisdiction.

This was a relevant new complaint – one where:

the matter complained about occurred before the Financial Ombudsman Service effectively existed (that is, before 1 December 2001); but
the complaint was not made to us until after 1 December 2001.

Under our rules, we therefore had to look at how the relevant predecessor scheme – in this case, the Insurance Ombudsman Bureau (IOB) – would have treated the complaint.

Mr W was complaining about the fact that the firm had turned down his claim. It did this in July 2001, which was before the Financial Ombudsman Service effectively existed. The IOB’s terms of reference said it could not consider a complaint unless the complainant was the policyholder, or the policyholder had given express permission.

The policyholder in this case, XYZ Ltd, had not given us permission, so we were unable to look at the complaint.

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32/8
jurisdiction decision – whether employee was eligible complainant – was key man policy taken out for his benefit?

DP Ltd was a company with an annual turnover of over £1million. When Mr A (one of its employees) was off sick for some time, DP Ltd made a claim to the insurance firm on his behalf. The firm turned down the claim. It told DP Ltd that the complaint could not be referred to us. It said the matter would be outside our jurisdiction because the size of DP Ltd’s turnover made it ineligible to complain to us. Mr A subsequently brought the complaint to us himself.

complaint outside our jurisdiction
The firm had been correct in telling DP Ltd that it was not eligible to complain to us. But we needed to establish whether Mr A was an eligible complainant.

When we asked for further information about the policy, we discovered it was not a personal health policy as we had been led to believe. It was a ‘key man’ policy (insurance taken out on the life of an individual – in this case, Mr A – whose serious illness or death would create a loss of earnings for the company).

The policy was not taken out for Mr A’s benefit, but for the benefit of DP Ltd. It was not designed to pay salary or sick pay to Mr A and there appeared to be no direct or indirect link between any payments the firm was liable to make and any payments that Mr A might receive.

We therefore concluded that the complaint was outside our jurisdiction.

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32/9
jurisdiction decision – commercial policy – whether event pre-dated 1 December 2001 – what is the relevant ‘event’?

Mr D was the owner of a hotel that was badly damaged during an arson attack in August 2000. A couple of months later, he put in a claim under his commercial policy. The firm paid it. However, it turned down a further claim that Mr D made in September 2001 for business losses and sundry expenses in connection with the fire.

When the firm rejected Mr D’s complaint about this, he came to us.

complaint outside our jurisdiction
The firm argued that Mr D’s complaint was outside our jurisdiction because the fire had occurred in August 2000, before the Financial Ombudsman Service effectively existed.

We came to the conclusion that the complaint was outside our jurisdiction, but not for the reasons given by the firm.

This was a relevant new complaint about a commercial policy. It therefore needed to be looked at in accordance with the Ombudsman Transitional Order. The relevant date was not the one on which the fire had taken place – August 2000 – but the date when the firm turned down Mr D’s claim – over a year later. However, in this particular case, this was still before 1 December 2001, so the complaint was outside our jurisdiction.

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32/10
group PHI policy – whether case within jurisdiction – employer was policyholder – whether employee an ‘eligible complainant’

Mr H worked at GJ Ltd, a large supermarket that offered private health insurance to its staff. After a period of ill health, Mr H put in a claim to the insurance firm. When the firm refused to pay, Mr H referred his complaint to us.

complaint within our jurisdiction
The firm argued that the complaint was not one we could deal with because neither GJ Ltd nor Mr H were eligible complainants; GJ Ltd because it was a commercial customer with an annual turnover of over £1million, and Mr H because the policyholder was GJ Ltd, not him.

We found that the complaint was within our jurisdiction. It was true that, because of its size, GJ Ltd was not an eligible complainant. However, Mr H was. Under the rules (DISP 2.4.12R), we were able to look at this complaint because ‘… the complainant [was] a person for whose benefit a contract of insurance was taken out or was intended to be taken out’.

It was clear that the policy was taken out for the benefit of GJ Ltd’s employees, including Mr H. For the complaint to be within our jurisdiction, it was not necessary for Mr H to be the only person to benefit from the policy. The fact that the employer also benefited was immaterial.

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some of the jurisdiction issues that arise include territorial scope, as the following case illustrates

32/11
jurisdiction decision – complainant resident in Jersey – firm based in Jersey – territorial scope of our jurisdiction

Mrs S, who lived in Jersey, rang us to ask if we could look into her complaint against a financial services firm based in the Channel Islands.

complaint outside our jurisdiction
Under the rules (DISP 2.7.1), the territorial scope of the Financial Ombudsman Service ‘covers complaints about the activities of a firm… carried on from an establishment in the United Kingdom’. The Channel Islands are not part of the UK and therefore not subject to the regulatory requirements of UK financial services law.

If the firm complained about had a registered office in England, Wales, Scotland or Northern Ireland, and the transaction complained about had been carried out there, then we might have been able to help. As it was, however, the complaint was outside our jurisdiction. We suggested that Mrs S should contact the Jersey Financial Services Commission to see if it could help with her complaint.

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