Advisers escape blame in £250,000 life insurance case by technicality
By Lucy Quinton
Mistakes made by tied advisers will now mean providers have to pick up the tab as opposed to independent advisers who feel the full force of their own mistakes, the latest Financial Ombudsman Service (FOS) ruling has shown.
The ruling resulted from a case where Scottish Widows failed to pay out on a widow's £250,000 life policy. But the FOS eventually ruled that the provider should pay out the full amount. This represented one of the biggest rulings won by an individual against a provider on a disputed claim.
The couple had taken out a joint Scottish Widows life policy for £250,000 after remortgaging their home with Cheltenham & Gloucester, part of Lloyds TSB, and were advised to cancel life insurance with Friends Provident. When arranging the new life cover, they told the Lloyds TSB salesperson that the husband had suffered from fevers. They signed a form confirming that they had disclosed all material facts yet at claims stage Scottish Widows rejected the claim as material facts were not disclosed on the original application because the saleswoman failed to record all the details that were provided.
Dale Tranter, research product developer at Sesame, said the adviser escaped being blamed for this because the adviser was the representative of the provider. "As she was the provider's agent, it was fair that the provider took the hit," he said.
Alan Lakey, principal of Highclere Financial Services, agreed with Tranter, adding that if the adviser dealing with the case had been an IFA then the FOS would probably have enjoined the IFA in the complaint.
Andy Milburn, IFA market manager at Royal Liver, said the adviser escaped blame because providers often had some stakehold in the adviser firm, meaning they paid out if there was a problem. However, he said the adviser had been at fault here because they had given bad advice and broken a golden rule in the industry by telling the consumer to cancel an existing policy before a new one had been written.
Emma Parker, spokesperson at the FOS, said that it had looked at both sides carefully to find the cause of the complaint and decided that the blame lay with the provider. She added that IFAs were by no means exempt and that the FOS did see complaints solely relating to the adviser sector. Parker added that in its annual review, the FOS saw claims against life and investment providers amount to 37%, while cases against IFAs were 12%.
