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ombudsman news

issue 46

May/June 2005

mortgage endowment complaints referred to the ombudsman service after the customer has accepted the firm's offer of redress

We receive a small, but not insignificant, number of mortgage endowment policy complaints where the customer complained to the firm, the firm offered redress and then:

  • the customer accepted the offer, but the firm failed to pay up; or
  • the customer accepted the offer and the firm paid up, but the customer then wanted to re-open the complaint.

The following case studies highlight our general approach to such cases.

case studies

mortgage endowment complaints referred to the ombudsman service after the customer has accepted the firm’s offer of redress

46/4
mortgage endowment policy – redress offered and accepted – but firm refuses to pay up

Mr and Mrs H were concerned when they received a "re-projection" letter from the firm, indicating that their mortgage endowment policy would not produce enough to repay their mortgage when it matured. The couple complained to the firm, saying that that this possibility had not been pointed out to them when they had taken out the policy in 1990.

After a three-month investigation, the firm wrote to Mr and Mrs H saying that it did not think its recommendation of a mortgage endowment policy had been suitable for them, bearing in mind their needs and circumstances at the time of sale.

The firm offered the couple compensation "in full and final settlement" of the complaint and it asked them to sign and return a pre-printed acceptance form, confirming that they were prepared to accept the offer on that basis. The compensation would put them in the position they would have been in if, at the outset, they had taken out a repayment mortgage instead.

Mr and Mrs H signed and returned the form, but the firm then refused to pay up, so the couple brought their complaint to us.

complaint upheld
We contacted the firm and asked why it had not paid the compensation agreed. The firm said that after Mr and Mrs H had returned the acceptance form it had reviewed its file – particularly the notes from the couple’s initial meeting with the firm in 1990, when they were advised to take out the mortgage endowment policy.

These notes showed that in 1990 Mrs H had been working as a cashier for a building society – while Mr H had an existing endowment policy which he had taken out some years before for savings purposes. The firm decided that its recommendation had – after all – been suitable.

Having considered the terms of the firm’s offer and of the couple’s acceptance, we concluded that it was not open to the firm to withdraw its offer in this way. The firm had entered a binding agreement which Mr and Mrs H were entitled to enforce.

In the circumstances, we decided not to look at the underlying merits of the original complaint. We told the firm to pay the compensation it had promised, together with a small payment to compensate the couple for the distress and inconvenience that the firm’s delay had caused.

46/5
mortgage endowment policy – redress offered and conditionally accepted – firm refused to pay up.

Mr J complained to the firm that it had wrongly advised him to take out a mortgage endowment policy. The firm explained that it no longer had any documentation from the time of sale, so could not be certain whether or not its recommendation had been suitable for him. However, it offered to pay compensation that would put Mr J in the position he would now have been in if, at the outset, he had taken out a repayment mortgage instead.

The firm asked Mr J to sign and return a pre-printed acceptance form, confirming that he was prepared to accept its offer "in full and final settlement" of his complaint.

Mr J did not think the offer compensated him adequately. He told the firm that, in his view, the offer was "acceptable" for the "out of pocket losses" he had incurred. However, he said it did not compensate him for the distress and inconvenience he had suffered when he discovered the policy might not produce enough, when it matured, to pay off his mortgage.

Mr J asked for a further £1,000 and said he would exercise his right to refer the complaint to us if the firm did not agree.

At that stage, the firm made further enquiries about Mr J’s circumstances at the time of the sale. It found out that he had become a financial adviser shortly after he had taken out the policy – and that he had subsequently arranged a number of endowment policies for himself. The firm then told Mr J that it was no longer prepared to offer him any compensation, so he came to us.

complaint rejected
Mr J said he was very unhappy with the firm’s change in stance. He said it should honour the terms of its original offer and he supported his view by pointing out that when he first responded to the offer he had described it as "acceptable".

Mr J had described the compensation as "acceptable" for some of the losses he had claimed. However, having considered the terms of the letter, we were not persuaded that Mr J had actually accepted the offer. We concluded that:

  • The firm had made an offer "in full and final settlement" of the complaint. Mr J had not accepted the offer on that basis.
  • Mr J’s letter seeking a further £1,000 compensation to settle the complaint was a counter offer, which the firm was entitled to accept or reject.
  • The counter offer replaced the original offer and the firm was not under any obligation to reinstate the original offer.

We also concluded that as there was no binding settlement agreement, we could go on to consider the merits of Mr J’s original complaint about the sale of the policy.

46/6
mortgage endowment policy – redress offer made and accepted but customer then tries to re-open the complaint

When Mrs C became aware that her mortgage endowment policy might not pay out its target amount when it matured, she complained to the firm that sold her the policy. She said that the adviser had told her the policy was "guaranteed" to pay out at least the target amount, so the firm should "honour its promise".

The firm did not accept that Mrs C had been given a guarantee about how much the policy would pay out at the end of the term. However, it was satisfied that it should not have sold her the policy. It agreed to pay compensation that would put her in the position she would have been in if she had taken out a repayment mortgage at the outset.

The firm explained how the compensation would be calculated and told Mrs C that its offer had been made in accordance with the regulator’s guidance.

Mrs C accepted the offer in "full and final settlement" of her complaint and used the compensation to pay off part of her mortgage. However, she decided not to surrender her policy. A few months later, she received a re-projection letter from the firm. This indicated that the amount that her policy was likely to pay out when it matured was now even less than the amounts that had been quoted in earlier years.

Mrs C contacted the firm, saying that she was "extremely distressed" by this. She asked it to pay her more compensation, which she said should not only reflect the increase in the amount of the projected shortfall, but also compensate her for the "guarantee" she believed the firm had given her at the outset. When the firm told her it was not prepared to re-open the complaint, she came to us.

complaint rejected
Having carefully considered the terms of the offer that Mrs C accepted, we concluded that the firm should not pay her any further compensation. We also decided that we should not investigate the merits of Mrs C’s original complaint. This was because:

  • when the firm responded to Mrs C’s complaint, it had addressed her claim that she had been given a "guarantee";
  • as it had claimed, the firm had offered her compensation – calculated in accordance with regulatory guidelines;
  • Mrs C had accepted the offer in "full and final settlement" of her complaint, so she could not make a further complaint about the same issues;
  • despite knowing the risks, Mrs C had kept the policy after receiving the compensation. She could not expect to be compensated for any further losses she had incurred as a consequence of that decision.
Walter Merricks, chief ombudsman

ombudsman news issue 46 [PDF format]

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.