Endowment timebars: Court breakthrough

Endowment court victory renews hope for compensation claims

A ground-breaking ruling may open the way for policyholders who have missed the complaints deadline. By Neasa MacErlean

Sunday April 30, 2006
The Observer


Endowment policyholders who have been barred from claiming for shortfalls on their policies by their insurers could win billions of pounds in compensation, following a ground-breaking court case.
In what is believed to be the first case of its kind, an endowment policyholder has successfully sued for compensation on the shortfall on his policy, even though he failed to make a claim within three years of receiving a 'red warning letter' notifying him of a potential shortfall. Vincent Cunningham, a telephone engineer in London, was awarded £1,500 from Friends Provident after the hearing at Reigate county court.

Although the case does not set a legal precedent because it was heard in a county court, the decisions of which are not binding on other judges, it could have implications for thousands of other endowment policyholders who had been told they had run out of time to make a claim against their endowment providers.

It shows that judges may take a more sympathetic view to ordinary consumers than the regulators and the Financial Ombudsman Service, which has agreed a strict timescale for settling endowment mis-selling cases with the financial services industry.

The Observer revealed last July that policyholders could potentially sue insurers for compensation. Cunningham represented himself, both in discussions with the insurer and with the ombudsman, and then, finally, when the case went to court. 'It was a matter of principle,' he said.

The implication of the ruling is that other people could also have a chance of being successful in court if they are within 15 years of the start date of their endowment policy. Up to 5 million people may have been mis-sold endowment plans linked to mortgages when they would have been safer and better off with a simple repayment mortgage, according to Which?, a major campaigner on this issue. Already about 10 per cent of them are thought to have been barred, under the three-year limit (from the point of being notified of a shortfall) agreed between the ombudsman and the insurance industry - even though an extra six months was added on in many cases. The majority will face the same restriction by next year.

The shortfall on endowments could be worth as much as £50bn, according to insurance industry analyst Ned Cazalet. Average sums of compensation ordered by the ombudsman are about £6,000.

The best advice is still to complain as soon as possible to the adviser or insurance company which sold the policy to you and to funnel cases through the system established under the ombudsman. But the route pioneered by Vincent Cunningham looks like an option for those who fall outside the time limits imposed by the system.

If just one or two law firms decided to fight the consumer case through the courts there would be a good chance they could set precedents at the High Court level or higher. Neither the financial services industry nor the ombudsman and regulators wants this to happen, as they are keen for their compensation liability to be capped within the next year or so under the timetable and procedures that they have agreed between them.

Cunningham's case involved examining whether he could be barred from claiming under various provisions of the Limitation Act 1980 and the surrounding laws. Under section 14A of the act, for instance, a potential claim would be restricted to within three years of the claimant acquiring the knowledge required for bringing an action. This is why endowment providers now send strongly worded letters to policyholders warning them that their endowment is on course for a shortfall compared with the size of the mortgage, and also that they need to complain soon to avoid missing the deadline to claim.

Cunningham received a warning letter in 2000 from Friends Provident, but he told the court that this letter was not specific enough to be covered by section 14A. He says: 'I argued that this "red letter" made no mention of time limits and also did not inform me that I had been mis-sold or had suffered a loss.'

Although a transcript of the judge's decision has not yet been made available, it would appear that the judge agreed with this view. Barrister Adam Samuel, a former Personal Investment Authority Ombudsman, has long argued that consumers could succeed in court.

He now says: 'A judge - even if only a county court one - has concluded that the letter mailed out in 2000 fails to start time running for Limitations Act purposes. So customers who have received a mailing should consider exercising their legal right to sue if their policy was mis-sold less than 15 years ago.'

Solicitors in the field are awaiting the publication of the transcript with interest. 'This could help a lot of people,' says Andrew Smith of Beresfords. 'It depends on exactly what the judge said. It may well be that all Friends Provident letters from that time - and possibly other providers - were similarly lacking in content.' Beresfords says that some insurers are turning down claims where compensation is clearly due by saying that people have missed the deadline to claim. Smith adds: 'We see companies invoking a "time bar" when we believe there is no merit in that defence.'

In a statement to The Observer, Friends Provident describes the judge's decision in this case as a 'one-off', and argues that later letters would fall under the law on limitations . Friends Provident says: 'The letter [sent to Cunningham in 2000] was in line with the agreed industry wording. The judge found that despite being within Financial Services Authority guidelines, the warning letter used in 2000 was not worded strongly enough to put the recipient on notice for the purposes of the Limitation Act 1980.

'The court's finding related only to the contents of the 2000 letter and not any subsequent letters issued to our customers which are more strongly worded. From April 2002 a letter was sent out to all our customers which was more strongly worded. In any future court cases we will be seeking to rely on the contents of this letter and therefore we consider that the findings of this case will not be relevant to the handling of future court claims and should therefore be viewed as a "one-off".'

The plight of people who cannot, or will not, go through the courts is illustrated by another case involving Friends Provident. The insurer would not examine the case of a man, Lee Barnes, who suffered from depression and, he claims, was therefore unable to file a complaint within three years of getting a red letter. The ombudsman is seeking to find out more information about Barnes's condition - and it is possible that it will use a rarely used rule to say that exceptional circumstances applied and that the insurer should therefore look into the case. But an ombudsman spokeswoman was not holding out much hope for Barnes. 'We can't just waive time bars,' she said. 'We have to be satisfied that the person was incapable of bringing a complaint for the entire time.'

Barnes is being represented by a firm of complaint handlers, Brunel Franklin. Ian Allison of Brunel Franklin was in correspondence with Friends Provident last week and told The Observer that it would be seeking more medical evidence to support Barnes's claim of being incapable of complaining because of his depression. 'We are not going to let this drop,' says Allison. However, he added, 'We do not take cases to court because it is expensive to do so.' Nevertheless, he thinks that the case 'could go to court' if Barnes were willing to pursue that route himself.

Interestingly, Barnes - like Cunningham - received a letter in 2000 from Friends Provident which the insurer says triggered the deadline clock.

A spokesman for the Association of British Insurers says: 'Going to court has always been an option that is open to people. Time-barring is something which the Financial Services Authority introduced in agreement with insurance companies. It's open to individuals to challenge that in the courts if they wish... We will look at this judgment with interest.'

dunstonh wrote:

Not a very good article in the presentation of the information. Whilst the time bar always did seem a bit dodgy and an my opinion it shouldn't exist, the article seems to make the assumption that the £1500 compensation was for the endowment shortfall. If the transacript isnt available yet, we don't know if that is £1500 to cover costs with an instruction that FP now have to review his complaint.

As I understand it, the court case was to fight the time bar, not about the suitability of the sale of the endowment. If this is the case then, FP now have to review his complaint and that could still result in the complaint being rejected.

Its a step in the right direction but its not quite how the Observer makes out.

Hi Dunstonh.
I am the person in question, the Phil Mitchell lookalike!! I have been trying to explain this case over the last few weeks on this board. I agree the article was a bit sparse on information but that was at my request and Neasa Macerlean the journalist wanted (I believe anyway a bit of a scoop so it may have been a bit rushed). I think she did a pretty good job though and if you search the Observer website she has written some very interesting arguments on the whole time bar fiasco.

Any how to explain my case. I complained to FP in 2002, my complaint was upheld. Howver I did not believe they had calculated the redress correctly. This went to the FOS iniitially were FP had this part of my complaint time barred which is why we ended up in court. As the article said for me it was " a matter of principle" for FP it seemed to be about saving £1300 which was the amount of extra redress I believed I was entitled to.

However when I submitted my claim FP in their defence stated that I was entitled to nothing as the whole redress amount was time barred under the Limitations Act 1980 (which is what the FSA time bar rules is based on) They sought to rely on the reprojection letter ("red letter"") stating that this was what put me on notice about the risks of endowments. The judge thought otherwise so they lost. The judge also decided that the part of my complaint that had been time barred by the FOS should not have been so I was awarded the full redress amount.

So the court case was not to fight the time bar but FP tried to have my case legally time barred on the strength of the original red letters.

Now I believe somewhere in the region of 700,000 people have been time barred by firms on the strength of these original red letters. In many cases the firms refuse even to investigate. What the court case means is that these people can now insist on their cases being investigated and if there was a miss-sale these people could then take the case to court, where on the strength of my case(though I am sure each case will be dealt with on it's merits) they have a very good chance of winning.

If 50 people have the gumption to do this and win with an average payout of £5000 it could cost FP £250000, if 100 peple do it or a 1000 or 10,000 well you get the picture!

So as you see the court case was not about time bars but FP tried to time bar it on the basis of the red letter and in doing so have opened a whole can of worms.

I for one will not be sorry if they lose a pile of money over it!!

Feel free to ask any questions and it might be worth making this thread a STICKY so as many people as possible see it

Regards Vinno65

Sorry to interrupt the flow here. But I have a FP endowment which I claimed against only to be told I was out of time. FP referred to the first red letter they'd sent (14/11/04) and fixed a 6 month time limit based on that (14/06/05). From what I've read above, this is unfair? They've told me that they will not be investigating my case. So what's my next step? Do I go back to FP or do I go to the Ombudsman now?
Any help would be much appreciated.

Firstly Hi Dunstonh,
To clarify the £1300 was the difference in redress calculated using a standard 25 year repayment mortgage and redress calculated using a 22 year repayment mortgage. When i went for my mortgage I already had one that had been running for 3 years so I specifically asked for the new one to run concurrently with and finish at the same time as my original. It seemed sensible to me and in fact FP in their final response stated that It would also have been best practice. I was however sold a 25 year endowment but only on the advice that I could surrender it after 22 years and still pay off my mortgage. So in my case, to put me back into the position I would have been in had I recieved proper and compliant advice(as per FSA rules), redress should have been calculated on the basis of the 22 year repayment that I should have been sold in the first place. FP had this part of my complaint time barred by the FOS because they said I was aware that it was a 25 year endowment from the outset. This is of course true but does not take into account that the only reason I took out the 25 year term was because they advised me to, telling me that I could surrender it after 22 years and still have enough to pay off my mortgage. It was because of this impasse I decided to go to court. I believed FP were wrong and the FOS had got it wrong(a view incidently backed up by the Independant Assessor).
When I submitted my claim however FP's defence was that I was entitled to nothing (even though they had admitted a miss-sale). Their argument was that I had been put on notice to the risks of an endowment by the red letter they had sent me in Aug 2000 and as such my complaint was now statute time barred. They argued in court that the FSA has no jurisdiction over the court and as such all that had gone on before re: my complaint, was irrelevant!
I won't go into all the details but the judge did not hold their point of view and consequently the lost. The judge then also looked at whether I was entitled to the higher amount of redress and found in my favour there aswell. I am happy to share the skeleton arguments used by myself and FP in court, also the transcript of the judge's decision (I haven't got a copy yet). If you would like them then go to https://www.uk-endowment-mortgages.com and PM me. I am known on there boards as Vinno. Hope this helps

Secondly Edinvestor,
I went down the small claims route which anyone can for amounts under £5000 The governement has a website that lays out all the laws and procedures concerning small claims,(very usefull for when FP's solicitors started quoting CPR rule 2.1(a) blah blah you get the picture!) I found out that CPR stands for Court procedure rules and found the website listing them all http://www.dca.gov.uk/civil/procrules_fin/index.htm. Its much less daunting that you might think. They are many web sites that show you how to fill out an intial claim form (just google small claims) and many websites that show you how a case is progressed. Then its £120 to file you claim with your local county court. I was a litigant in person so I had no solicitors fees, and if I had used a solictor and won the likelehood was that I would not have recieved costs for it. The whole point about small claims is to keep costs down so that Joe public can represent himself. FP threatned me with £2400 costs when they won (got that wrong didn't they). But when I looked into it from what I could see there is a cap for costs at small claims and if they had have won then the costs they would be entitled to were nowhere near the £2400 they had threatened me with. I could be wrong in all this but £50 spent on a local solictor would confirm it. As it was, when I won the only costs I was awarded was the £120 I had paid to file the claim. Just out of interest I discovered a thing called A McKenzies friend. This entitles a litigant in person such as my self to have a friend in court(so you are not totally alone!) who can help with taking notes etc. Just out of interest FP tried to have the claim move to the Fast Track court (as I stated above they said i was entitled to nothing as so the claim was for the full redress amount which was over £5000) They did this I believe because the rules for costs in the Fast track are different and if they had have won then they may well have been entitled to a lot more.(although again I believe costs are awarded at the discretion of the judge) Hope this helps and as i said to Dunstonh if you want anymore info just PM at the website above

Lastly whereami
Are you sure that the first red letter you recieved was in Nov 2004. I also recieved this one (with the time limit attached in a little box at the end of the letter) but I had also recieved reprojection letters in Aug 2000 and more in Nov 2002. Did you recieve these letters? If you did what action did you take when you recieved them. The one you should have recieved in 2000 probably said that you could "wait and see". If you did recieve these you could possibly go the small claims court. You would be time barred from the FOS. But the first thing to do is write back to FP stating that you intend taking them to court, and as a consequence you would like your complaint investigated to see if you have an actionable case i.e you were miss-sold and have suffered a loss as a result. Remember you may have been miss-sold but be no worse off than if you just surrendered your endowment and switched to a repayment, but you won't know until FP have investigated. There is a post on this site by a Leona who was in the same boat as you. FP refused to look at her case but she has since written back to them and now they are investigating good luck!
regards Vinno