R Laura Critchley v Financial Ombudsman Service Ltd

JurisdictionEngland & Wales
JudgeMrs Justice Lang
Judgment Date13 November 2019
Neutral Citation[2019] EWHC 3036 (Admin)
Docket NumberCase No: CO/1050/2019
CourtQueen's Bench Division (Administrative Court)
Date13 November 2019
Between:
The Queen on the application of Laura Critchley
Claimant
and
Financial Ombudsman Service Limited
Defendant
(1) Bank of Scotland Plc (Trading as Halifax)
(2) The Financial Conduct Authority
Interested Parties

[2019] EWHC 3036 (Admin)

Before:

Mrs Justice Lang DBE

Case No: CO/1050/2019

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

ADMINISTRATIVE COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Adam Temple (instructed by Stephens Wilmot Limited) for the Claimant

James Strachan QC and Benjamin Tankel (instructed by Financial Ombudsman Service Limited) for the Defendant

Javan Herberg QC (instructed by Linklaters) for the First Interested Party

The Second Interested Party did not appear, but submitted a written representation

Hearing dates: 23 & 24 October 2019

Approved Judgment

Mrs Justice Lang
1

The Claimant applies for judicial review of a decision made by an Ombudsman (Mr John Swain), on behalf of the Defendant, dated 14 December 2018, dismissing her complaint against the First Interested Party (“Halifax”) that a credit card payment protection insurance (“PPI”) policy had been been mis-sold to her.

2

HH Judge Bidder QC, sitting as a Judge of the High Court, granted permission on the papers on all save one ground of challenge, namely, that in making the decision, the Defendant applied an unlawful policy or set of counter-presumptions, evidenced in its Navigator software programme. The Claimant renewed her application for permission on the remaining ground, and I considered it at a ‘rolled up’ hearing on the same occasion as the substantive hearing.

Facts

3

PPI is a form of insurance cover designed to meet an individual's financial commitments for servicing debt if he or she suffers a loss of income as a result of unemployment, sickness or accident.

4

PPI was sold over a long period, in high volumes. According to the Financial Conduct Authority (“FCA”), between 1990 and 2010, between 52 and 64 million policies were sold to 30 million people.

5

In 2005, the National Association of Citizens Advice Bureaux sent a complaint to the Office of Fair Trading, drawing attention to the excessive profit margins on PPI contracts and widespread rejection of benefits. In October 2006, the Office of Fair Trading produced a report identifying the following concerns:

“There are indications that consumers receive poor value in the low proportion of premium income paid out in claims (of the order of 20 percent), and we have identified features of the market which adversely affect competition and appear to lead to poor value.”

6

The matter was referred to the Competition Commission which published a report into PPI in January 2009. It confirmed the low claims ratio for PPI policies generally, and identified that, within the PPI sector, the value offered by credit card PPI was among the lowest, at 14%, with 86% of the premium going towards commission, expenses and profits. The Competition Commission proposed a package of measures, including a ban on single premium policies, which were particularly financially disadvantageous to consumers, and a ban on the sale of PPI policies contemporaneously with another product.

7

The Financial Services Authority (“FSA”) took action against a number of firms for their practices in selling PPI. After consultation it introduced a series of measures, including a specific section in the FSA Handbook (the rule book for authorised firms) addressing the handling of PPI complaints, which I consider in more detail later in my judgment.

8

The Defendant has received more than 2 million PPI complaints. Over 1.7 million have been resolved, and compensation has been awarded in over 1 million complaints. The large volume of complaints has meant that the Defendant has had to treble in size and adapt its processes to handle the increased case load.

9

Complainants have been encouraged and assisted by claims management companies which charge a fee for their services. “We Fight Any Claim” (“WFAC”), has submitted thousands of complaints in relation to PPI policies. It represented the Claimant in her complaint and stands behind her in this claim for judicial review.

10

On 15 April 2002, the Claimant applied successfully for a credit card, and a PPI policy in support of it, from Halifax (which subsequently merged with the Bank of Scotland). Although she thought that she had posted the application, the Ombudsman found, on the evidence from Halifax, that she completed the joint application form in a branch of Halifax, with the benefit of advice from a member of staff. Initially, the credit limit on the credit card was £1,250 and it increased in stages, eventually reaching £1,900.

11

Halifax plc was acting as an insurance intermediary as the PPI policy was underwritten by Halifax Insurance Ireland Limited (an associated company). The policy provided her with life and critical illness cover (payable as a lump sum to meet her outstanding credit card balance, with a maximum of £25,000), and disability and unemployment cover payable as a monthly benefit, at the rate of 10% of the outstanding balance, subject to a maximum of £2,500 per month. Disability and unemployment benefits ceased after 12 consecutive monthly payments or once the balance was paid off, if earlier.

12

The Bank reserved the right to change any term of the policy on 30 days notice.

13

The premium was payable monthly, at a rate of 78p per £100 of credit. It was a general term of the policy that her cover would cease if she did not pay the premiums, and that she was required to continue paying premiums whilst claiming benefits.

14

The terms of the policy restricted, to some extent, her ability to make a claim. In this case, the Claimant's complaint related in particular to the limitations on her disability insurance cover. The term ‘disability’ was defined, so far as is material, as “a state of incapacity resulting solely from an accidental bodily injury or sickness or disease …. which wholly prevents you from doing your work or other work that your experience or training would allow you to do.”

15

Under the heading ‘Exclusions’, the Policy stated that benefits would not be paid if the disability resulted from, inter alia:

i) “a pre-existing condition, as defined”;

ii) “backache and related conditions unless there is radiological evidence of medical abnormality resulting in disability”;

iii) “any psychotic or psychoneurotic illness, mental or nervous disorder, stress or stress related condition, unless the condition has been diagnosed by a consultant psychiatrist and you are under the continued supervision and receiving treatment from a consultant psychiatrist”.

16

The Claimant made use of the card, but she never made a claim on the PPI policy. She cancelled the card and the policy in 2006.

17

At the time of the application, the Claimant was aged 50 (her date of birth is 12 May 1951). She was employed as a supervisor at Wilkinsons (a chain of homeware stores) and had been working there for one year. Her annual income was £12,000. She was entitled to sick pay under the terms of her contract of employment, and in the Defendant's consumer questionnaire she ticked the box which indicated that she was entitled to at least 6 months sick pay, but not more than 12 months. She was also eligible for a redundancy payment, though her evidence as to the amount was inconsistent – either 3 months pay or at least 6 months but less than 12 months. She was entitled to a death in service payment of twice her annual salary. She stated that, in the event that she was unable to work, she would not have been able to afford her card repayments. The Claimant did not have any pre-existing or current health conditions when she made the application.

18

On 14 February 2017, the Claimant made a complaint to Halifax that the PPI policy had been mis-sold to her. She stated in the Defendant's consumer questionnaire that, if she had known of the limitation of the cover, in respect of back pain and mental health, and if she had known of the true cost of the policy, and its poor value, she would not have purchased it. The complaint was made on her behalf by WFAC.

19

Following investigation, Halifax dismissed the complaint in a letter dated 15 March 2017. In summary, the reasons were that the Claimant was eligible for the policy, and it appeared that she had a need for it, as neither her savings nor her employee benefits were sufficient to cover her card payments. Furthermore, she was not significantly affected by any of the policy's exceptions or limitations. Halifax found that she had been adequately advised verbally about the total cost of the PPI policy. She understood it was optional and she explicitly agreed to purchase it. At the relevant time, there was no obligation to disclose the commission payment.

20

On 13 April 2017, the Claimant complained to the Defendant that the PPI policy had been mis-sold by the Bank.

21

On 8 May 2017, an adjudicator employed by the Defendant assessed her complaint and decided that the PPI policy had not been mis-sold. In reaching her decision, she was guided by Navigator, a software programme which has been designed to assess PPI complaints. It is programmed to ask for information about the claim, and to apply criteria, based upon the relevant Ombudsman jurisprudence, to suggest an outcome. Adjudicators are at liberty to depart from the suggested outcome, though there was evidence before me that they rarely do so.

22

Navigator was praised in the report of Richard Thomas CBE entitled ‘The impact of PPI mis-selling on the Financial Ombudsman Service’, dated January 2016, at paragraph 1.4, where he said:

“Of several developments, one stands out – the development of ‘Navigator’ – a tool which helps to analyse the permutation of circumstances in each case, applies the ombudsman service “jurisprudence” to that permutation, and suggests...

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