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Must the “Insurance” Ombudsman follow the law? (Cathy Hawkins)

Must the  “Insurance” Ombudsman follow the law? (Cathy Hawkins)

Clients who want to challenge an insurer’s decision (or that of other financial institutions for that matter) and issue legal proceeding should consider the option of first pursuing a complaint to the Financial Ombudsman service.

One advantage of this is that the Ombudsman can base a decision on what is “fair and reasonable” and this can be more generous to the policyholder than the law, even though the latter has been reformed by statute.

In Aviva Life and Pensions v Financial Ombudsman Service, insurers recently challenged in a court hearing a decision by the Ombudsman to reinstate a life policy insurers had avoided for non-disclosure of dementia, which the Ombudsman apparently made because the illness meant that the policyholder was unable to answer the questions at the proposal stage properly. The Ombudsman decision was quashed and the complaint will have to be dealt with again.

But the court did confirm that a decision can be made on a “fair and reasonable” basis by the Ombudsman, even if it does conflict with insurance law. Which is good for policyholders, albeit frustrating for insurers.


However, it does seem that the Ombudsman needs to have written reasons to explain less obvious decisions, if they are in conflict with the law. Otherwise, they are potentially open to challenge on the basis that no reasonable person would have made such a decision. (A principle known as “the Wednesbury principle” to lawyers).

It’s worth giving consideration to the Ombudsman if an adverse cover decision is made, where the policyholder is eligible for the Ombudsman jurisdiction. Because the Ombudsman can go beyond the law to make a decision if it’s fair and reasonable.

Cathy Hawkins has over 25 years’ experience in the financial sector and specialises in insurance law. She is a member of Cubism’s financial liabilities team, seeking compensation for victims of wrongdoing by banks and other financial institutions.