Matter over mind

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Judge expresses concerns regarding the FOS’s jurisdiction.

In judicial review proceedings, the court agreed to quash a Financial Ombudsman Service (FOS) decision (involving an applicant with cognitive problems) where the Ombudsman provided insufficient reasons for departing from the relevant law regarding misrepresentation.


In 2006, Mr and Mrs M took out a £127,000 joint life with terminal illness policy.

In early August 2013, Mr M approached the insurer to cancel the policy as it was no longer required. The insurer correctly confirmed with Mrs M her agreement to cancel the joint policy before cancelling it.

On 7 November 2013, Mr M applied to the same insurer for a £500,000 single life with terminal illness policy. Mr M did not disclose in the application:

  • GP appointments from 20 August 2013, when his siblings discussed concerns about personality changes and possible mental illness.
  • Psychiatric referrals in September and October 2013.
  • Referral in October 2013 for a CT brain scan.

The insurer accepted the application and cover started on 12 November 2013.

Ten days later, Mr M’s early on-set dementia was diagnosed. The £500,000 terminal illness claim was declined and the policy voided on grounds of misrepresentation.

Mr and Mrs M complained about the handling of both the joint life and single life policies.

Ultimately, an Ombudsman rejected the complaint regarding the joint life policy, stating that the insurer had followed the right process when cancelling it, but upheld the part of the complaint relating to the single life policy stating: “I think special consideration needs to be given to the illness that [he] was suffering from at the time. I don’t think [he] could be expected to make the same disclosures that [one] would expect a reasonable person to make” …and directed reinstatement of the single life policy and reassessment of the claim.

Judicial review was sought on various grounds including inadequacy of the Ombudsman’s reasoning, and the decision being ‘Wednesbury unreasonable’. The FOS stood by its decision, but early in the court case consented to a quashing order, conceding only that there were inadequacies in the Ombudsman’s reasons.


The court acknowledged that the remit of the Ombudsman was to determine what in his opinion was fair and reasonable in all circumstances, included taking into account, but not being bound by, relevant law and practice.

The law on misrepresentation arose from the Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA 2012), which came into force in April 2013. CIDRA 2012 does not recognise the concept of “innocent misrepresentation” (to which the Ombudsman had referred). A “qualifying misrepresentation” under CIDRA 2012 is either deliberate/reckless or careless. A careless representation entitles the insurer to avoid the policy if it would not have accepted the risk at all.

The standard of care required when applying for insurance is that of a “reasonable” consumer, but if the insurer was or ought to have been aware of any particular characteristics or circumstances of the consumer, those are to be taken into account in assessing what is reasonable.

The insurer did not know about Mr M’s cognitive disability arising from early onset dementia until the claim was made on 11 December 2013.

The judge stated that at some point before August 2013, Mr M developed the condition. He had no insight about his personality changes, which family members noticed. 

Although the Ombudsman was not required to follow relevant law and practice, the judge stated that the Ombudsman’s reasoning was inadequate. She did not, for example, explain why she departed from the law.

Regarding the unreasonableness/irrationality ground for judicial review, the judge stated: “the question which should be posed and answered is whether a different Ombudsman properly directing herself as to her powers, could rationally conclude that it would be fair and reasonable to uphold the complaint.”

Although the judge had power to limit the quashing order to the single life policy, he decided that the whole complaint decision should be quashed (regarding both policies) and all aspects returned to the FOS for re-determination. It was possible that the effective cause of Mr M’s marital breakdown and impecuniosity was dementia – the Ombudsman “might” rationally conclude it fair and reasonable for the insurer to reinstate the joint life policy. The judge commented that if Mr and Mrs M had brought court proceedings against the insurer, the insurer would have succeeded.


The judge in passing expressed concern about the FOS’s jurisdiction “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”. The FOS was not, however, absolved from making consistent decisions.

This judgment has helpfully explicitly clarified, at least with lump sum policies, that the FOS can only direct reinstatement of a policy up to its jurisdictional limit of £150,000. This limit cannot be implied.

Therefore, if a FOS decision is provided which does not adequately explain why the law and practice has not been applied and/or proposes policy reinstatement without explaining the monetary limit, this judgment can be relied upon to obtain clarification.

This case also highlights the difficulties associated with complainants who have cognitive problems, whether in the context of misrepresentations or instructions to cancel cover

About the author

Helen Tilley

Kennedys 020 7667 9355 Email