Clash to the Titans: Insurance Law v The Financial Ombudsman Service

However, as I have explained in my upcoming
publication (Jay Gajjar, ‘The Doctrine of Insurable Interest in Life Insurance:
A Fling of the Past or Till Death Do Us Part?’ (2013) 127 British Insurance Law Association Journal 1) there has been an
unhealthy divorce between the FOS and insurance law. To this end, especially
with regard to insurable interest, which effectively holds that a party cannot claim
on an insurance policy unless they have an “interest” in the subject matter of
the policy, the FOS has openly taken a much more liberal view and found that
cohabitees, for example, do have an insurable interest in the lives of each
other whilst the law has traditionally precluded this. This is not necessarily
a criticism of the FOS, and instead indicates that the FOS wishes to move forward
with the times when the law has traditionally, and up until the point of the
recently proposed reforms by the Law Commissions, remained stuck with antiquated
case law decided centuries ago in the
context of wholly different social settings.
Nonetheless, the collective criticism is that the
difference between the approach of the FOS and the law surrounding insurance,
as applied in the courts, has led to legal uncertainty.
This uncertainty has once again come to the fore
in an outlandish announcement by the FOS that when it is to deal with
complaints made by consumers regarding the validity of insurance policies, it
will not follow the direction of the High Court in the case of Bunney
v Burns Anderson Plc & Anor [2007] 4 All ER 246, [2008] Bus LR 22, [2007] EWHC 1240 (Ch) which held that there is a maximum £150,000.00
award limit. The FOS has taken the view that it holds the jurisdiction to require
an insurer to reinstate a policy and make good a claim regardless of £150,000.00
threshold.
Regardless of the monetary issue, which
will remain a point of contention for both the insurers and the insureds, the
problem that transpires is that the law is not being followed by the Ombudsman.
The uncertainty this causes in unhelpful from a commercial and actuarial
perspective and it is notable that, due to the public body status attached to
the FOS, this practice has the potential to be subjected to judicial review by
the High Court.
From the viewpoint of the “wider picture”,
this disparity between the approach of the courts and the approach of the
Ombudsman is far from comforting and presents material commercial dangers.
Jay Gajjar
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Jay Gajjar
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