D&O insurance - beyond the reach of the FOS? – Part II

We revisit the uncertainty over the jurisdiction of the Financial Ombudsman Service (FOS) to entertain complaints from those insured under D&O policies, which has now been clarified in the case of R (On the application of Bluefin) v FOS .

In our August edition, we considered the issue of whether a director could be considered a “consumer” for the purposes of submitting a complaint over a Directors & Officers (D&O) policy to the Financial Ombudsman Service (FOS) and thus qualify as an “eligible complainant”.

The court has recently decided in judicial review proceedings in R (On the application of Bluefin) v FOS that the director in question was not an “eligible complainant”, and the FOS had no jurisdiction to entertain his complaint.  

A brief recap

Mr Lochner complained to the FOS that Bluefin Insurances Services Limited, a broker, failed to notify his claim under a D&O policy. The policy was taken out by Betbroker, the company formerly employing Mr Lochner as a director. Bluefin challenged the FOS’s decision to deal with the complaint, arguing that Mr Lochner was not a "consumer" and therefore was not an “eligible complainant”.

As outlined in more detail in our previous article, the FOS only has jurisdiction to entertain complaints from a “consumer”, being “any natural person acting for purposes outside of his trade, business or profession”.

Judicial review

The key issue for the court was whether the FOS erred in law in deciding that it had jurisdiction to entertain Mr Lochner’s complaint.

However, before answering this question, it was necessary to consider whether the court was actually entitled to pass judgment, or whether the FOS had sole discretion in such matters. In other words, was the question one of “precedent fact”.

Precedent fact?

This concept arises where a tribunal (such as the FOS) is set up by Parliament to deal with special matters. Decisions made by such tribunals cannot be appealed via the courts, other than via judicial review. However, a tribunal must not act outside the scope of its authority. Where its authority depends upon the existence of a set of facts, the courts are entitled, if requested, to consider those facts.

Bluefin argued that the issue was one of precedent fact for the courts to decide. The FOS contended that the question of its jurisdiction was one for it alone to determine, and that the court may only intervene if there was evidence of an irrational decision or some error of law.

The judge agreed with Bluefin, pointing to the “clear and binding” approach in determining whether a tribunal’s decision is based on precedent fact as set out by Lady Hale in R (A) v Croydon London Borough Council. Lady Hale stated that where the exercise of a tribunal’s power depends on the existence of an objective fact, it is for the courts to decide whether that requirement has been satisfied.

The judge, agreeing with Bluefin, observed that the definition of a “consumer” in the Financial Conduct Authority (FCA) Handbook “requires a hard-edged finding of an objective fact”, and eligibility to complain to the FOS is determined by reference to “limited conditions stated in objective terms”. Therefore, the FOS decision was one of precedent fact which was open to the court’s scrutiny.

Was Mr Lochner an “eligible complainant”?

The judge concentrated on the true purpose of the complaint. Mr Lochner faced a third party claim for losses arising from his wrongful acts during his directorship. He unsuccessfully claimed cover under the D&O policy and alleged that cover was declined due to Bluefin’s failure to notify the insurers of the claim. Left unprotected by the policy, Mr Lochner complained to the FOS, seeking compensation from Bluefin for his losses arising from his wrongful acts undertaken in the course of business.

In looking at the purpose of Mr Lochner’s complaint to the FOS, the judge considered that the complaint was “wholly concerned” with a loss arising in the course of his business or profession. Despite the personal benefits available under the policy, the complaint could not be said to be made in a personal capacity. Mr Lochner was not acting as a consumer at the time of the complaint and therefore was not an eligible complainant. The FOS was not entitled to entertain his complaint.


The court’s view on the issue of precedent fact is significant. It means that in situations where there is a “right” or “wrong” answer as to whether a set of objective facts exist, the FOS does not have free reign to determine its jurisdiction.

This case should be borne in mind where the FOS makes a questionable decision as to its jurisdiction. When on the receiving end of a FOS complaint, in relation to a D&O policy or otherwise, respondents and their insurers should keep in mind that the complainant needs to be eligible to complain, otherwise the FOS`s right to exercise jurisdiction may be challenged.

The court’s decision that Mr Lochner was not eligible to complain to the FOS is welcome. Even though it is clear that D&O policies are taken out in the course of business, the personal benefits that directors derive from such policies had previously muddied the waters. The court’s decision has provided clear guidance on this issue. The FOS should now be very reluctant to seek to exercise its jurisdiction in relation to claims notified under D&O policies.

Click here to read the judgment in R (On the application of Bluefin) v FOS.

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