Misrepresentation, Non-Disclosure and Breach ... - Law Commission

9.113 However, the FSA Rules do require that intermediaries carry professional
indemnity insurance. 79 This provides some protection for both consumers and
businesses that an intermediary will be able to meet any claims brought against
them.
The Financial Services Compensation Scheme (FSCS)
9.114 This is a long-stop protection for consumers and small businesses. A consumer
or small business may obtain a decision from a court or the FOS against the
intermediary, but then find it unenforceable because the intermediary is insolvent.
In such circumstances, the matter may be referred to the FSCS. If the FSCS
finds that an intermediary is unable to meet its liabilities it may be declared “in
default”. At this point, the FSCS may consider claims for compensation.
9.115 Claims are considered in accordance with the Compensation Sourcebook part of
the FSA Handbook. There are financial limits on compensation, which reflect the
limits applicable under predecessor schemes. For investment insurance claims,
an eligible investor could receive up to £48,000 towards any loss. This figure
comprises 100% of the loss up to £30,000, and 90% of the loss thereafter to a
limit of £50,000. For non-investment insurances, there is a distinction between
compulsory insurances, such as motor insurance, and non-compulsory
insurances such as household insurance. Claims in respect of compulsory
insurances are met in full, whereas claims in respect of non-compulsory
insurances are paid in full for the first £2,000 but are limited to 90% of any loss
above this figure.
The Financial Ombudsman Service (FOS)
Powers
9.116 Since 2005, the Financial Ombudsman Service has been able to investigate
complaints brought against insurance intermediaries as well as against insurers.
If accepted by the complainant, an ombudsman’s decision is binding on the
regulated firm to a maximum cash limit of £100,000. An ombudsman is obliged to
make decisions based not solely on law but on what is “fair and reasonable in all
the circumstances of the case”. 80
Agency cases
9.117 We were interested to establish what line the FOS takes on the agency issues we
are considering. In theory, for example, it would be possible for an ombudsman to
take the view that an insurer should, in some circumstances, be liable for the acts
or omissions of an independent intermediary. Such a decision could be based on
what the ombudsman considered fair and reasonable, rather than on the law.
79 FSA Handbook, MIPRU 3.2.1.
80 Financial Services and Markets Act 2000, s 228(2).
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