Aviva Life & Pensions (UK) Ltd, R (On the Application Of) v McCulloch & Anor

An ombudsman determining a complaint under section 228(2) of the Financial Services and Markets Act 2000 must decide what is fair and reasonable in all the circumstances. The ombudsman must take relevant law, rules, guidance and practice into account, but is not confined to applying them. If the ombudsman departs from them, adequate reasons must be given.

Judicial review asks whether the ombudsman’s conclusion was irrational, not whether the court would reach the same evaluative judgment. Even where an insurer complied with relevant law and practice, an ombudsman may rationally find that it acted unfairly or unreasonably. A quashing order ordinarily leaves the complaint to be re-determined under the statutory scheme.

Aviva challenged a final determination by the Financial Ombudsman Service which rejected a complaint about a cancelled joint-life policy but upheld a complaint concerning a single-life policy. The Ombudsman concluded that the insured’s non-disclosures were innocent and directed Aviva to reinstate the policy and consider the claim.

FOS conceded that the determination was inadequately reasoned and consented to a quashing order, but argued that the proceedings were academic. Aviva sought a narrative judgment and argued that only one lawful outcome was available. The central issues were the scope of the Ombudsman’s statutory discretion, the applicable irrationality standard, and the effect of the monetary limit on any direction.

1. The application was allowed on the conceded ground. The Ombudsman’s final determination was quashed for inadequacy of reasons. The whole determination was quashed, and the complaint remained in being for re-determination under the statutory scheme. No formal remission was required.
2. Under section 228(2) of the Financial Services and Markets Act 2000, the Ombudsman must determine what is fair and reasonable in all the circumstances. DISP 3.6.4 R requires relevant law, regulations, regulatory rules and guidance, codes of practice and, where appropriate, good industry practice to be taken into account. Those matters do not exhaust the enquiry. Compliance by an insurer with relevant law and practice does not compel rejection of the complaint.
3. The court’s question was whether a properly directed Ombudsman could rationally uphold the complaint. The relevant irrationality standard was whether the decision was so outrageous in its defiance of logic or accepted moral standards that no sensible decision-maker could have reached it. The Ombudsman was making her own evaluative assessment, rather than reviewing the insurer’s process on a rationality basis.
4. The Ombudsman had failed to explain why her conclusion departed from the relevant law, guidance and practice. R (Heather Moor & Edgecomb) v FOS [2008] EWCA Civ 642 required an Ombudsman who departed from relevant law to say so and explain why. The court rejected the narrower approach advanced by Aviva, consistently with that authority.
5. A differently reasoned decision upholding either complaint might be rational. In relation to the joint-life policy, the Ombudsman could consider whether illness caused the cancellation and whether reinstatement would be fair and reasonable despite Aviva’s correct procedure. In relation to the single-life policy, the competing policy considerations concerning innocent non-disclosure and the insurer’s commercial interests did not make a favourable determination necessarily irrational. Any such decision would require careful reasons and consistency in decision-making.
6. Any liability arising from reinstatement of the single-life policy remained subject to the £150,000 monetary limit in section 229 of the Financial Services and Markets Act 2000. It was good practice for an Ombudsman’s decision to state that limitation expressly.
7. The costs order required Aviva to pay FOS’s costs after filing the acknowledgment of service, including an interim payment of £12,500.

First-instance judicial review of the Financial Ombudsman Service’s final determination. The determination was quashed and the complaint was left to be re-determined.