Lloyd’s Insurance Company SA v Financial Services and Pensions Ombudsman and Joanna Donnelly and Harm Luijkx (Notice Parties) IEHC 290, was a statutory appeal to the High Court from a decision (Decision) of the Financial Services and Pensions Ombudsman (FSPO). The complaint arose out of a structural insurance policy (Policy) over the Notice Parties property. 

In 2006 the Notice Parties purchased a house from a developer with the benefit of the Policy. Defects in the property came to light in 2010. Lloyd’s Insurance Company (Insurer) refused to provide cover for damage to the roof connected with deflecting trusses associated with cracking on ceilings and walls.  The Insurer’s refusal was on the basis that the roof trusses were not inherently defective and the damage was caused by the incorrect positioning of a water tank in the attic. 

The FSPO Decision 

The Notice Parties complained to the FSPO, who upheld the complaint on the grounds that it was unreasonable, unjust and improper for the Insurer to refuse cover. The Insurer was also ordered to compensate the Notice Parties for inconvenience in the sum of €20,000. The Insurer appealed to the High Court (Court).  It maintained that the FSPO was guilty of a serious and significant error in interpreting “structure” under the Policy in a way that included the Notice Parties’ claim. 

The Insurer argued that the FSPO exceeded its jurisdiction by treating its refusal of cover, that was permitted under the Policy, as unjust, unreasonable or improper conduct.  The Insurer also took issue with the entitlement to and quantum of compensation, which it was contended was disproportionate to any inconvenience suffered by the Notice Parties and having regard to the engagement by the Insurer. 

The High Court’s Appellate Jurisdiction 

The courts have consistently held that an appeal of an FSPO decision is not intended to be a re-examination of the merits of the decision under appeal. The Court confirmed, relying on earlier authorities that there is a high threshold to be met before it will intervene to set aside an FSPO decision.  Where the appeal involves a decision as to the construction of an insurance policy, as was the case here, the Court must be satisfied it was vitiated by a serious and significant error.  As to questions of law, although the Court will not take a deferential approach to parts of the FSPO’s decision on pure questions of law, it will only intervene where the error of law is material and overall, the decision reached was vitiated by a serious and significant error or a series of such errors. The Court stated that the FSPO has the right to get the decision wrong.  Even if the Court reached a different finding to the FSPO, this would not be grounds to set aside the Decision.

Was the Decision vitiated by error of law as to proper interpretation of the insurance contract?

In considering this question, the Court, citing Hyper Trust v FBD Insurance IEHC 78, found that if the insured peril is “an effective cause” of the damage arising, then it suffices in insurance law.  The Court found that as there was evidence that the damage was caused by deflecting trusses which were not fit for purpose, it was open to the FSPO to construe the damage as caused by an insurable event i.e. a defect in the structure of the roof. The Court held that the FSPO did not make a “serious or significant” error in construing the meaning of “defect” (not defined in the Policy), and held that damage caused by the deflecting trusses came within the definition of “major damage” and “structure” as defined in the Policy. 

Jurisdiction of the FSPO

The Court held that it was not open to the FSPO to rely on section 60(2)(c) of the Financial Services and Pensions Ombudsman Act 2017 (2017 Act) in granting relief against the Insurer.  Section 60(2)(c) requires a finding of lawful conduct on the part of the Insurer.  The FSPO found that on a proper reading of the Policy, it did cover the damage in question, and the Insurer wrongly refused cover. The Court held that this finding did not support reliance on section 60(2)(c).  However, the Court did not consider this to be fatal to the overall Decision, because the FSPO had correctly identified jurisdiction under sections 60(2)(b) and (g) of the 2017 Act.  The basis for its jurisdiction was clear and flowed from the terms of the Decision itself. 

Error in directing compensation

The FSPO can direct a financial services provider to pay compensation for any “loss, expense or inconvenience” sustained by complainants because of the conduct complained of.  The quantum payable is capped at €250,000 under the 2017 Act.  The Court observed that the FSPO has a wide discretion regarding compensation.  

The Court rejected the Insurer’s argument that the compensation of €20,000 was disproportionate to the inconvenience caused to the Notice Parties and was unreasonable in the circumstances.  In assessing the level of the compensation, the Court emphasised the fact that the Notice Parties had to vacate their home and had suffered an interference with the peaceful occupation and enjoyment rights as homeowners.  The Court also noted the Notice Parties’ frustration and inconvenience in having to progress the claim over several years to secure remediation works.  That inconvenience, in the Court’s view, could have been avoided if the Insurer had provided cover without the need for an FSPO complaint.     

Key Takeaways

In affirming the Decision and dismissing the appeal, the Court adopted a common-sense approach to interpreting the Policy.  The judgment helpfully summarises the appellate jurisdiction of the High Court in statutory appeals from the FSPO.  It confirms that errors of law i.e. the FSPO’s reliance in part on an incorrect provision of the 2017 Act, was not a material one, because the proper provisions of the Act were otherwise identified in the Decision.    

The judgment is of particular interest as it considers the quantum of compensation that the FSPO can award for inconvenience. The powers of the FSPO to award compensation and rectification are expansive, a point noted by the Court.  The judgment will be of assistance to financial services providers and complainants in confirming that the level of compensation must be within a range that is reasonable, and that reasonableness can be judged by reference to various factors, including the culpability of the financial services provider in causing that inconvenience.   

Please contact Lisa Carty, Deirdre O’Donovan or your usual William Fry contact for further information or advice in this area.

Contributed by Joanne Ryan, Gail Nohilly & Rebecca McNamee