fair and reasonable or an affront to the rule of
law?
Robert Short
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agenda
 the Financial Ombudsman Service – the history
 alternative dispute resolution the ombudsman way
 ‘fair and reasonable’ vs. the law
 fair and reasonable – what does it mean?
 case studies
 ombudsman ‘lore’
 conclusion
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the history
31 years of being different…
1981 Insurance Ombudsman Bureau
 3 insurers
 membership by agreement
2001 Financial Ombudsman Service
 whole financial services industry
 set up by law
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ombudsman’s ADR
unlike the courts the Service…
 is inquisitorial – we ask questions
 is informal – no pleadings like a court
 offers ‘bespoke’ redress, and…
 is ‘fair and reasonable’
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fair and reasonable vs. the law
a barrister’s view…
‘the Financial Ombudsman Service is quite
simply an affront to the rule of law’
Anthony Speaight QC
Professional Negligence Bar Association
25 January 2011
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fair and reasonable vs. the law
but the position at law…
‘a complaint is to be determined by reference
to what is, in the opinion of the
ombudsman, fair and reasonable in all the
circumstances of the case’
Financial Services and Markets Act 2000
s228 (2)
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fair and reasonable vs. the law
and the rules state…
‘the ombudsman will determine a complaint by reference to what is,
in his opinion, fair and reasonable in all the circumstances of
the case’ – DISP 3.6.1
‘taking into account
(1) relevant
(a) law and regulations
(b) regulator’s rules, guidance and standards
(c) codes of practice; and
(2) (where appropriate) what he considers to have been good
industry practice at the relevant time’ – DISP 3.6.4
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fair and reasonable in practice
ask
 what’s the position in law?
 what do you think really happened?
 is the law too harsh in these circumstances?
remember
 every case is unique and dealt with on its own facts and
circumstances
 there are many shades of grey
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is fair and reasonable at odds with the law?
Consumer Insurance (Disclosure and Representations) Act
2012
 adopts the ombudsman’s long-standing approach to nondisclosure
 signals a move away from the Marine Insurance Act 1906,
which was considered too harsh for consumers
 the law will now follow a more fair and reasonable
approach
 Our approach has
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examples of our fair and reasonable approach
 matching sets
 breach of a warranty or condition (Law Commission
proposals)
 non-disclosure
 damage that has happened gradually
 pre-existing medical conditions (pet and PPI)
 damage occurring over 2 separate policy terms with
different insurers
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conclusion
how to reach a fair and reasonable outcome
 remember that the circumstances are rarely clear cut
 insurance policies can be complicated
 people don’t have a lot of financial knowledge and can
make mistakes – they aren’t all trying to defraud
 try to be objective
 consider all of the evidence and information available
 look for the reasons behind a policyholder’s actions
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ombudsman ‘lore’
helping you know our approach

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technical advice desk - 020 7964 1400
online technical resource
ombudsman news
our website
consumer enquiries - 0800 023 4567 or
0300 123 9 123
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case studies
one
 a policyholder leaves their keys in their car, with the
engine running to de-ice their windscreen. Whilst they are
inside their house the car is stolen
 their policy contains a ‘keys in car’ exclusion
 the insurer rejects the claim
 what would the Financial Ombudsman Service want to
know to reach a fair and reasonable outcome?
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case studies
one
 where was the car parked? – driveway/on the road/garage
 where was the policyholder in the house? – upstairs/front
door/by the window
 what is the area like? –built up/rural/long driveway
 why did the policyholder go back into the house? – to
keep warm/something urgent
 how was the policy sold? – was the exclusion brought to
the policyholder’s attention
 similar to the court’s approach in Starfire Diamonds
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case studies
two
 the policyholder makes a claim after their bag is stolen
from a Paris railway station
 when the policyholder returns to England they report the
claim to their insurer
 the policy excludes claims where there is no police report
 the insurer rejects the claim
 what would the Financial Ombudsman Service want to
know to reach a fair and reasonable outcome?
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case studies
two
 on what day of the holiday did the theft take place? – first
day/last day
 why isn’t there a police report? – never reported/report not
received yet/police chose not to file a report
 if the theft wasn’t reported, why not? – had to catch a
train/couldn’t be bothered/worried about language
barriers/police station wasn’t open
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case studies
three
 the policyholder submits a claim after their car is stolen and
found damaged and abandoned
 there is no sign of forced entry and the insurer suspects the
policyholder’s son of taking the car without consent
 the policy contains an exclusion for loss or damage if a theft
is perpetrated by a member of the policyholder’s family
 the insurer rejects the claim
 what would the Financial Ombudsman Service want to know
to reach a fair and reasonable outcome?
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case studies
three
 is there an exception to the exclusion whereby the exclusion will not
apply if the policyholder co-operates with the police?
 if there is and there was no prosecution – whose decision was this
and did the policyholder co-operate with the police?
 if not, was the more limiting exclusion brought to the policyholder’s
attention?
 does the son have a known history of TWOC/theft – relevant to
prejudice if the exclusion was not highlighted?
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case studies
four
 a policyholder makes a claim after their home is burgled whilst they
were asleep
 their policy requires them to (warrants they) engage all locks on any
external doors at night
 the policyholder’s front door has a latch-lock and a 5 lever MDL, but
only the latch-lock was engaged
 entry was through the front door and the police conclude the burglar
would not have got in if the 5 lever MDL had been engaged
 the insurer rejects the claim for breach of warranty
 what would the Financial Ombudsman Service want to know to reach
a fair and reasonable outcome?
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case studies
four
 whether the policyholder was made aware of the warranty
 whether the policyholder got a discount for having a 5
lever MDL
 what the insurer would have done about the claim if the
consumer had only had a latch-lock on the door
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case studies
five
 a policyholder submits a claim to their insurer following
accidental damage to two tiles on their bathroom floor
 the insurer is unable to source the exact same make of tile
and offers a cash settlement representing the cost of two
similar replacement tiles
 the policyholder is unhappy because they do not believe it is
possible to buy similar tiles and the tiles they can buy will
clearly not match; they believe the insurer should be liable to
cover the entire cost of a new floor
 the insurer refuses to alter its offer
 what would the Financial Ombudsman Service want to know
to reach a fair and reasonable outcome?
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case studies
five
 the applicable principle is matching sets (insurer will pay
for 100% of the damaged tiles and 50% of the undamaged
tiles)
 can the exact tiles be sourced from somewhere other than
the insurer’s usual suppliers?
 can matching tiles be specially made?
 if exact replacement tiles cannot be sourced how similar is
the nearest match? – is it reasonable for the policyholder
to demand that the entire floor be replaced?
 is it more cost effective to replace the entire floor rather
than sourcing two exact replacement tiles?
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questions
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fair and reasonable or an affront to the rule of law?