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"Fair and Reasonable" - FOS Discretion

R (Aviva Life & Pensions (UK) Ltd) v Financial Ombudsman Service [2017]

The High Court granted an application by Aviva for judicial review of a decision by the Financial Ombudsman Service ("FOS") in which the Ombudsman failed to explain why she had reached a decision without following relevant law, guidance and practice.


Aviva made an application for judicial review following a decision by the FOS wherein it upheld a complaint by Mr and Mrs McCulloch relating to Aviva's handling of two life insurance policies.

In July 2006, Mr and Mrs McCulloch took out a 23-year joint life policy with Aviva ("the Joint Life Policy").  In August 2013, Mr McCulloch cancelled the Joint Life Policy, with Mrs McCulloch's independent written consent.  Mr McCulloch was subsequently referred for medical investigations over concerns from his family regarding his mental health.  On 7 November 2013, Mr McCulloch applied to Aviva for a single life insurance policy with terminal illness benefit with a sum assured of £500,000 ("the Single Life Policy").  In doing so, he did not disclose to Aviva any information regarding the medical investigations that were ongoing at that point. 

On 22 November 2013, Mr McCulloch was diagnosed with early on-set dementia.  In the following weeks Aviva were notified by Mr McCulloch's family that he had been admitted to a hospice, that his condition was terminal and that they therefore wished to notify a claim on his behalf for the terminal illness benefit under the Single Life Policy.  Aviva declined the claim on the grounds of misrepresentation and sought to avoid the Single Life Policy.

In June 2014, a complaint was made to the FOS on behalf of Mr and Mrs McCulloch in relation to Aviva's handling of both the Joint Life Policy and the Single Life Policy.  In November 2015, the Ombudsman rejected the complaint in relation to the Joint Life Policy, but upheld the complaint in relation to the Single Life Policy.  The Ombudsman concluded that Mr McCulloch's misrepresentation to Aviva was made innocently, rather than "negligently" as Aviva had argued, giving special consideration to his illness (which meant the Ombudsman did not expect Mr McCulloch to make the same disclosures that she would expect a reasonable person to make).  The Ombudsman directed that Aviva should allow Mr McCulloch to reinstate the Single Life Policy on its original terms and consider Mr McCulloch's claim.

In February 2016, Aviva made an application for a judicial review seeking a quashing order in relation to the Ombudsman's decision.


Unusually, the Court upheld Aviva's application and quashed the Ombudsman's decision.

The Court considered the legal framework that applies to the FOS as set out in Part XVI of the Financial Services and Markets Act 2000 ("FSMA").

Section 228(2) of FSMA provides that "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". However, sections 228(3) and (4) also requires the Ombudsman to set out, in writing, the reasons for reaching that decision.

The FCA handbook on "Dispute Resolution: complaints", sets out what the Ombudsman needs to take into account in considering what is "fair and reasonable". Specifically, Rule 3.6.4 requires the Ombudsman to consider the relevant law and regulations, the regulators' rules, guidance and standards, relevant codes of practice and what he considers to have been good industry practice at the relevant time.

As regards the relevant law, the Consumer Insurance (Disclosure and Representations) Act 2012 did not recognise the concept of an "innocent misrepresentation", so a careless misrepresentation would be sufficient to allow the insurers to avoid the policy. Mr Justice Jay noted that, if the complaint had been the subject of legal proceedings, Aviva would have succeeded.

However, he held that whilst the Ombudsman is not obliged to follow the relevant law, guidance and practice, the Ombudsman must explain why they have not done so.  Mr Justice Jay followed the reasoning in R (Heather Moor & Edgecomb) v FOS [2008] EWCA Civ 642, where Stanley Burnton J (as he was then) concluded that the Ombudsman "is free to depart from the relevant law, but if he does so, he should say so in his decision and explain why".  Mr Justice Jay observed that "The breadth of its jurisdiction under section 228(2) of the FSMA does not absolve it from consistency in decision making" (para 68).


It can often be extremely difficult to bring a judicial review against a public body, such as the FOS, successfully. The court is reluctant to grant a judicial review and so decisions like this are rare.

The key issue from this case is that the FOS must ensure that the reasons for reaching a decision are clearly explained. The Court reiterated that the Ombudsman is free to depart from relevant law, guidance, regulations, rules, standards and codes of practice in exercising its discretion to determine what is fair and reasonable in all the circumstances of the case – they just need to give proper reasons for doing so. This requirement is not new, as it was laid down by the courts almost 10 years ago, but it nevertheless remains extremely important. Indeed, in this case the FOS acknowledged its failings early on in the judicial review proceedings, but Aviva nevertheless wanted a full court judgment on the issue.

The decision also highlights the gap that can exist between the relevant law and regulations, the regulators' rules, guidance and standards, relevant codes of practice, and the FOS' discretion to reach a decision based on what the Ombudsman considers to be fair and reasonable. This gap can lead to ambiguity as to when and how those considerations ought to operate before the FOS in practice. For his part, Mr Justice Jay voiced his "personal concerns about a jurisdiction such as this which occupies an uncertain space outside the common law and statute. The relationship between what is fair and reasonable, and what the law lays down, is not altogether clear" (para 73). In such potentially uncertain terrain, his warning that the FOS should nevertheless ensure that its decisions are consistent may be of some use to Insurers and advisers who find themselves before the Ombudsman.


For further information please contact Alexia Drew or Jonathan Hyde

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.