We recently published on our website, a briefing paper about our approach to awarding compensation for distress and/or inconvenience and for other non-financial loss. It has long been the practice of ombudsman schemes to make awards for distress and inconvenience but this is likely to be a new development for the firms previously regulated by the Securities and Futures Authority.
We consider it important that firms should compensate their customers, on top of making good any financial loss, if they cause the customers distress and inconvenience. Many firms commonly offer what they term "ex gratia" payments, where they recognise that their service has fallen short of the standards they seek to provide.
Our briefing paper sets out the factors we consider when deciding, in any particular case, whether an award for distress or inconvenience is appropriate. We hope this information will help firms to resolve - satisfactorily and without our direct involvement - cases where such awards are appropriate. By doing this, firms can not only improve the service they provide, but also avoid the inevitable delays and costs that can result from having to refer a complaint to us.
"Distress", in this context, includes embarrassment, anxiety, disappointment and loss of expectation. The degree of distress involved can vary widely; it can be little more than a relatively minor annoyance or, in certain cases, may cause serious worry, loss of sleep or even prolonged ill-health.
"Inconvenience" can include any expenditure of the customer's time and/or effort that has resulted from the firm's conduct. Again, in relatively minor cases this may not amount to a significant burden. But it can include severe disruption and a great deal of wasted time.
The briefing paper provides full details of our approach but, in essence, we consider that awards may be made where:
Although we decide all cases on their own merits and in the light of the particular circumstances of the dispute, we hope that the general issues raised in the following case studies will be helpful.
Mrs A's complaint concerned poor administration on the part of the firm that sold her and her husband a joint life assurance policy. Immediately after her husband's death, she wrote to tell the firm what had happened. Unfortunately, a few days after her husband's funeral, she received a letter from the firm, addressed to her husband and offering condolences on her death. Mrs A's son called the firm to inform it of the error and was assured this would be corrected. However, Mrs A then received a second letter from the firm, again addressed to her late husband. This time the firm was contacting him as "executor of Mrs A's estate", to discuss a home insurance policy held in Mrs A's sole name.
The firm sent Mrs A three letters of apology over a period of a month, together with some flowers. However, Mrs A felt that the firm had not dealt with her complaint satisfactorily and she referred the matter to us.
Our investigation revealed a straightforward - if very unfortunate - administrative error, whereby the firm had removed the wrong name from its records. We did not support Mrs A's view that the firm had caused excessive delays in handling the complaint. The available evidence suggested that the complaints had all been dealt with promptly. However, we did conclude that the firm could have attached greater importance to the situation and dealt with it more sympathetically. We felt that its letters did not offer a sufficiently detailed explanation or apology for the errors made.
The firm admitted full liability for its errors, but did not think it would be appropriate to offer financial compensation. We did not agree. We recommended that the firm should offer compensation for the distress and inconvenience it had caused. Initially, the firm offered £100, but after negotiation it increased the offer to £150 and Mrs A accepted.
Following her divorce, Mrs W and her children moved out of the family home where her ex-husband continued to live. She wrote to advise the firm of the move in January 2000. However, in June of that year the firm sent to her old address the statement of account for an investment she had made for her children. Mrs W telephoned the firm and was reassured that everything would, in future, be sent to her new address.
Mrs W telephoned the firm again in December 2000 to stress that the difficult circumstances of the divorce made it particularly important that mail was not sent to her old address. Following this, the firm sent letters to Mrs W's old address on three further occasions. One of these letters was an apology for sending mail to the wrong address.
Mr W then stopped making maintenance payments, apparently because he had discovered how much money his ex-wife had been investing on behalf of the children. Mrs W had understood this information to be confidential between her and the firm. However, she claimed that someone from the firm had telephoned Mr W at home and discussed with him the details of a withdrawal she had made from the children's investment account.
In response to her complaint, the firm made Mrs W an ex-gratia payment of £25. Mrs W rejected this, as she believed the stress and financial hardship warranted a larger payment. She was worried about the detrimental effect this matter could have on future relations with her ex-husband.
We thought that the firm probably had disclosed details of Mrs W's investments to her former husband. However, it was difficult to establish the exact influence this had on Mrs W's subsequent problems and financial difficulties. The firm got matters badly wrong concerning her change of address. There were also several serious breaches of confidentiality. Although the firm made Mrs W a further offer of £125 to bring this matter to a close, we believed it was reasonable to pay her a total of £400. The firm agreed.
Acting on the advice of an independent financial adviser, in 1988, Mr and Mrs C took out an endowment policy. In January 2001, they surrendered the policy and shortly afterwards they received a letter from the adviser. He was angry that they had not contacted him before surrendering the policy and he claimed that their actions had resulted in his losing £1,038. This was because the product provider had asked him to return the commission he made from the sale. The adviser warned the investors that unless they arranged to take out a new policy, he would take them to court.
The couple complained to the network to which the adviser was linked. Shortly after this, the adviser wrote to them again. He said that unless they paid him the £1,038 within seven days, he would arrange for a summons to be served on them and would apply for "arrestment" of Mrs C's wages. Concerned about possible embarrassment at Mrs C's place of employment, the couple contacted a solicitor.
Meanwhile, the network upheld the complaint. Mr and Mrs C had not entered into any agreement that they would compensate the adviser for lost commission if they surrendered the policy. The network offered the couple £100 as compensation for their distress. However, Mr and Mrs C believed that they should be offered a larger sum, and that their solicitor's fees should be met, so they brought their case to us.
We reached agreement with the network that it should pay the solicitor's fees, as well as a total of £200 for distress and inconvenience. We considered the increased award for distress and inconvenience to be appropriate, in view of the severity of the distress caused by the threat of court action.
Mr Y decided to transfer his policies to a different firm. He contacted the representative of his existing firm for help in arranging the transfer. This apparently angered the representative to such an extent that he rang Mr Y and threatened to "break his legs". Mr Y was understandably upset, not least because - a year earlier - someone had assaulted him in his own home and the representative was aware that this had happened.
We only had Mr Y's word for it that the representative had made the threatening phone call. However, there were tape recordings of Mr Y's subsequent telephone conversations with the representative, in which the threat made in the earlier call was discussed. These tapes did not provide conclusive proof, but they indicated that Mr Y's account of the original call was likely to be correct.
In view of the seriousness of the threat and the distress it caused, we considered that an award of £1,500 - together with a letter of apology from the representative - was appropriate. The firm agreed.
Mr and Mrs R took out a 15-year mortgage endowment policy in November 1993, with a sum assured of £5,500. In October 1994, they increased the sum assured to £33,000 and extended the term to 25 years. The firm issued an endorsement to the policy, but failed to alter the details of the policy's maturity date. This was still shown as 2 November 2008 - 15 years after the start of the original policy.
The couple failed to notice the error at the time. They said that when they reviewed all the paperwork - several years later - they had thought the maturity date was correct. They had forgotten that they extended the policy's term to 25 years. It was only when the firm contacted them about the policy - in June 2000 - that they realised the error.
They complained to the firm, suggesting that it should repay their mortgage at the end of the 15-year term, provided they maintained their premium payments at the existing level. The firm rejected the complaint, on the basis that both the application form for the increased amount and the "fact-find", completed at the time of the sale, clearly showed a term of 25 years, starting from 1994. However, the firm did offer to pay £200 compensation for its administrative error.
Our adjudicator suggested that the error entitled Mr and Mrs R to cancel the contract. The firm did not accept that Mr and Mrs R were unaware of the actual policy term at the time of the amendment, but it did offer to increase to £400 its offer for distress and inconvenience.
The adjudicator advised Mr and Mrs R to accept the offer. She explained that if the complaint went forward for an ombudsman's decision, it was unlikely to succeed if the ombudsman concluded they had been aware of the 25-year term at the time they extended the policy. Even if the complaint succeeded, the ombudsman could not require the firm to honour the contract that the couple thought they had taken out. The appropriate remedy would be to cancel the policy and refund the premiums, with interest. This was unlikely to help Mr and Mrs R, since they needed a means of repaying their mortgage - and that had been the purpose of the endowment policy. After consideration, Mr and Mrs R accepted the firm's revised offer in settlement of their dispute.
ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.
The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.