Good news in relation to the Financial Ombudsman Service (FOS) is in short supply for insurers of personal lines, and so the Court of Appeal's decision in Clarke v In Focus on 14 February 2014 is both a comfort and a relief.
Clarke v In Focus Asset Management  related to a professional negligence claim against a financial advisor but has broad application for all entities governed by the FOS, including insurers.
The Court of Appeal confirmed that a complainant who has accepted an award by the FOS may not then pursue legal proceedings for the same claim. This is due to the legal principle of res judicata that prevents a party from being sued for the same claim twice.
The High Court had already held that res judicata applied to these circumstances in the case of Andrews v SBJ Benefit Consultants . However, the High Court judge in Clarke disagreed, deciding that in fact a complainant should be entitled to bank the money awarded by the FOS and then pursue any further sums through the Court, essentially offering complainants a fighting fund with which to pursue insurers.
Unsurprisingly this decision was met with consternation by hard-pressed insurers who already often find the FOS an unfavourable jurisdiction, with its ability to impose punitive interest rates and impose awards up to the maximum statutory amount of GBP 150,000, previously GBP 100,000, as well as to "recommend" higher payments (such recommendations being themselves an interesting legal issue).
The core legal issues in the case were whether a complaint related to a "cause of action" and whether a decision by the FOS was equivalent to a decision by a Court or Tribunal.
The Court of Appeal determined that an FOS decision was equivalent and that although whether a cause of action had been determined was a matter of fact, in the vast majority of cases this would be the position such that no court proceedings could subsequently be brought to claim further sums.
The decision to uphold the restriction on complainant's actions first raised in Andrews is pleasing; it resolves the conflicting High Court decisions and brings welcome clarity for insurers on the issue.
Legal and practical implications
Whilst this decision can be seen as a victory for the industries subject to the FOS jurisdiction, the current rules remain weighted against insurers in terms of achieving finality, and careful consideration needs to be given to the legal issues.
Firstly, if the FOS determines a complaint in favour of insurers, under the Financial Services & Markets Act s.228 the consumer can reject the decision and there is no bar to commencing litigation against insurers in respect of precisely the same issues.
Secondly, a consumer whose claim exceeds GPB 150,000 is entitled to reject even a favourable award made by the FOS up to its statutory maximum amount in order to pursue recovery of the full amount of the claim before the Court.
In practical terms, FOS decisions are binding upon insurers with limited legal remedy but only binding upon consumers when they have chosen to accept them. The Court of Appeal decision impacts upon the latter position.
The decision is of importance for those such as A&H insurers whose maximum benefits (whether for PTD alone or a combination of PTD and TTD and/or medical expenses) often exceed the FOS's current maximum award, whether in original currency or when converted.
Thus there may be limited circumstances when it is beneficial for insurers for an FOS complaint to be pursued. The Court of Appeal decision would in our view mean that a claimant awarded GBP 150,000 by the FOS for a PTD claim, who wished to claim additionally for TTD (arising out of the same cause of action), would need to decide either to accept the FOS award or reject it entirely and commence litigation, embracing the risks associated with it, but could not do both.
One point to note is that the Court of Appeal stated that it was open to Parliament to exclude the doctrine of res judicata by statute, and it is possible that further "consumer friendly" legislation could include an amendment to allow a consumer to litigate for further sums after a FOS decision.
Finally, Insurers should remember, however, that an insured person could make a further unrelated claim under the same policy even after an FOS decision, unless a full release is obtained.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.