High Court overturns decision of FSPO on basis of "serious and significant errors of law"
High Court overturns decision of FSPO on basis of “serious and significant errors of law”
Utmost Paneurope DAC v FSPO
On 10 November 2020, the High Court overturned a decision of the Financial Services and Pensions Ombudsman (the FSPO) following an appeal brought by an insurance provider, Utmost Paneurope DAC (Utmost), under section 64 of the Financial Services and Pensions Ombudsman Act 2017 (the FSPO Act).
The appeal, which was heard before Mr Justice Garrett Simmons, concerned a decision of the FSPO relating to Utmost's determination of an insurance claim under a group income protection scheme (the Scheme).
We have summarised the FSPO complaint and the subsequent appeal below together with setting out some key takeaways from the High Court decision. Please see here for the full judgment.
Summary of complaint to the FSPO
The Complainant made a claim under the Scheme in 2016, which was denied by Utmost on the basis that the Complainant's inability to work was attributable to an excluded illness. In assessing the claim, Utmost found that the Complainant's inability to work stemmed from her suffering from fibromyalgia, an excluded illness under the insurance contract, rather than her rheumatoid arthritis, which was not excluded. On foot of Utmost's refusal to pay out the claim under the Scheme, the Complainant made a complaint to the FSPO.
The final decision of the FSPO upheld the complaint on the grounds prescribed in sections 60(2)(b) and 60(2)(g) of the FSPO Act, which are set out below. Despite not finding any breach of contract, the FSPO's decision directed Utmost to:
(i) admit the claim from a particular date in full
(ii) make future payments to the Complainant.
The FSPO specified that these directions were subject to Utmost's ability to review the claim at any point in the future.
Summary of appeal to the High Court
Utmost subsequently appealed the decision of the FSPO to the High Court. Broadly, Mr Justice Simmons considered the following two issues:
Whether the FSPO's finding was vitiated by a serious and significant error in law
Whether the remedy directed by the FSPO was valid.
The High Court found that the FSPO's decision was vitiated by serious and significant error
Mr Justice Simmons found that the approach of the FSPO in his assessment of Utmost's conduct was erroneous in law on the following basis:
The FSPO's starting point for a proper assessment of the "reasonableness" of Utmost's conduct should have been the relevant code of conduct: Mr Justice Simmons held that this is the objective standard against which the "reasonableness" of the conduct falls to be considered (i.e., the Consumer Protection Code 2012).
The FSPO had insufficient regard for the terms of the contract: Mr Justice Simmons stated that the mere fact that conduct is in accordance with the terms of the contract does not necessarily mean that the conduct is "reasonable" – conduct may be unreasonable even if it is lawful – however the terms of the contract are nevertheless relevant to determining whether the insurer's conduct was reasonable.
The FSPO's criticisms of Utmost's correspondence were "unjustified": The Court found that Utmost's correspondence with a consultant rheumatologist, who had been nominated to carry out an independent medical examination of the insured party, had not been improper as had been suggested by the FSPO. Utmost could not properly assess the claim without some attempt to quantify the relative impact that the two separate medical conditions (one of which was excluded from the scope of cover under the Scheme) had on the insured party's inability to work.The High Court concluded that the FSPO's legal errors in reaching his decision were serious and significant, and accordingly made an Order setting aside the decision and directions of the FSPO.
The High Court found that the remedy directed by the FSPO was invalid.
Mr Justice Simmons noted that, strictly speaking, it was not necessary to address the validity of the remedy directed by the FSPO, given that the High Court had found that the FSPO erred in concluding that Utmost's conduct was unreasonable or otherwise improper.
Nonetheless, Mr Justice Simmons briefly addressed the validity of the remedy. He noted for example that the FSPO did not find, as a matter of contract law, that the insured party was entitled to recover under the Scheme. Yet the remedy the FSPO directed was precisely that Utmost admit the claim. The High Court therefore found that there was no lawful connection between the finding of unreasonable or improper conduct and the remedy imposed, and held the remedy to be a non sequitur.
Noteworthy Points from the High Court decision
The High Court's decision provides useful judicial clarification on the extent of the FSPO's powers to uphold a complaint on the grounds set out in sections 60(2)(b) and 60(2)(g) of the FSPO Act.
Sections 60(2)(b) and 60(2)(g) respectively provide that a complaint to the FSPO against a financial services provider may be upheld on either of the following grounds:
"(b) the conduct complained of was unreasonable, unjust, oppressive or improperly discriminatory in its application to the complainant;
(g) the conduct complained of was otherwise improper."
In his judgment, Mr Justice Simmons stated that the FSPO "appears to enjoy what might be described as a hybrid jurisdiction". In other words, the FSPO Act provides the FSPO with the ability to adjudicate not only on contractual disputes such as breach of contract claims, but also in respect of conduct that "while not contrary to law, is found by the Ombudsman to be 'unreasonable' or 'unjust'".
The High Court found that both the Consumer Protection Code 2012 and the terms of the contract between the Complainant and Utmost were necessarily relevant to whether Utmost's conduct was unreasonable for the purposes of the FSPO Act. The High Court concluded that the FSPO's approach to the complaint evinced "serious and significant errors of law", for instance because it purported to "make a finding that the conduct of the insurance provider was unreasonable without any attempt to measure that conduct against the relevant code of conduct."
Building upon previous judgments relating to the FSPO's jurisdiction, the decision of Mr Justice Simmons makes clear that while the FSPO's "jurisdiction to consider and determine complaints in respect of the conduct of a financial service provider is extensive", his discretion to determine what conduct may be "unreasonable" under the FSPO Act is not unfettered.