Faiz Siddiqui, R (on the application of) v Financial Ombudsman Service Ltd.

An ombudsman must identify and apply the correct law, including the true construction of an insurance policy. The ombudsman may depart from the common law when determining what is fair and reasonable, but must explain that departure and its reasons.

For insurance cover requiring a specific or sudden accident, the court must consider the policy wording and the circumstances as a whole. An insured’s deliberate conduct will not ordinarily produce an accident where the injury is its natural and direct consequence, or where the insured took a calculated risk of injury, without a fortuitous intervening cause.

The claimant sought judicial review of the Financial Ombudsman Service’s decision dismissing his complaint about ARAG’s refusal to provide legal-expenses cover. He alleged that receiving a lawyers’ letter, following hostile correspondence with his father, caused psychiatric injury and amounted to a specific or sudden accident under three insurance policies. He also alleged that a dispute with his father arose from collateral funding agreements connected with contracts for goods and services.

The central issues were whether the ombudsman had erred in construing accident, whether the decision was inconsistent with an earlier ombudsman decision or irrational, and whether the contractual dispute fell within cover for disputes arising from agreements for buying or hiring goods or services.

1. The claim was dismissed. The ombudsman was required to determine the correct legal meaning of the insurance agreements. An error in construing the contracts would have justified judicial review. The ombudsman could depart from the law in reaching a fair and reasonable outcome, but would have had to identify and explain the departure.
2. The decision, read as a whole and in context, correctly applied the relevant authorities. The expression “specific or sudden accident” had to be construed in the context of the policies, which covered bodily injury caused by the accident. The receipt of the letter was not an isolated event but the culmination of the claimant’s deliberate correspondence, the unresolved dispute and the prior history between father and son.
3. The analysis in De Souza v Home and Overseas Insurance Co. Ltd. [1995] LRLR 453 and Dhak v Insurance Company of North America (UK) Ltd. [1996] 1 WLR 936 required attention to whether the injury was the natural and direct consequence of the insured’s deliberate conduct, whether the insured intended injury or took a calculated risk of injury, and whether a fortuitous cause intervened. The insured’s state of knowledge and the attributes of the reasonable insured were relevant. These authorities were not mechanical formulas.
4. The ombudsman had sufficiently considered both accident and injury. The material issue was whether the claimant had taken a calculated risk, and the ombudsman was entitled to infer that he had. The decision adequately considered the claimant’s evidence of shock and psychiatric injury.
5. The earlier ombudsman decision concerned materially different facts and did not require the same result. The decision was neither irrational nor inadequately reasoned.
6. The ombudsman made no error in treating the alleged funding dispute as outside the contractual cover. The words “arising from” were wide, but the cover remained directed to disputes between the parties to the relevant agreement.