Letter from EMAG to the FOS's chief ombudsman - 17 December '03

Mr Walter Merricks
Chief Ombudsman
Financial Ombudsman Service
South Quay Plaza
183 Marsh Wall
London E14 9SR

Procedural complaint about the FOS, over Equitable Life.

I last exchanged letters with the FOS, expressing concerns on behalf of Equitable Life policyholders, in June 2002. Since then, the FOS's behaviour has become more dubious, with ever-lengthening delays.

First, let me say that EMAG is a strong supporter of the need for policyholder protection to remain within a strengthened FOS. EMAG made this clear to the annual meeting of the FSA in July, in a subsequent submission to the House of Lords select committee on the constitution and will again in a forthcoming paper to the Treasury select committee's study on improving confidence in long-term savings. It is EMAG's view that the FOS should be given more teeth and more autonomy. The existing "Memorandum of Understanding" (MOU, July 2002) places the FOS in an invidious relationship with the FSA, as demonstrated by the pressure the FSA appears to have been exerting upon your organisation in the matter of Equitable Life.

Equitable Life complaints:

Many thousands of policyholders have exhausted Equitable Life's (ELAS) so-called complaints procedure. It is apparent that this process is virtually a mockery. It seems that complaints are first stonewalled then rejected - usually without any personalised response to the individual's specific complaint.

In consequence, in the last couple of years, several thousands of these complaints have arrived in the FOS's in-tray, where they have sat for as long as 30 months. Few have been allocated to an adjudicator. Without recourse, the complainants are assigned to a group of cases to stand behind one of your very small number of lead cases. Thereafter, the policyholders have been the recipients of a bi-monthly series of round robin, holding letters. Most of those have reported that the FOS is awaiting a new compromise scheme, which was still-born, or awaiting yet further representations from ELAS.

ALL policyholders' groups are concerned:

At an "E 7" meeting of the Equitable Life group-of-groups on 14th October, unanimous concern about the FOS's process was expressed. This is an extract from the minutes: (http://www.emag.org.uk/committee_minutes/E7_14102003.htm):

"FOS status - including Correspondence between Sue Slipman (FOS) and Michael Josephs: Despite extensive correspondence, the FOS had not given any intimation as to how they handled group actions, in particular the selection of the lead cases. Furthermore, complainants who lodged independently were being put into groups by the FOS unilaterally, without consultation and without their agreement on the relevance of the chosen lead case.

The FOS's approach made it very difficult for groups of complaints to be effectively managed and appeared arbitrary and high-handed to complainants.

It appears that the FOS is essentially the creature of the FSA, since Board and budget are in the FSA's hands. We noted that the FSA's two-year review is about to enter consultation period and suggest that contribution to this would be very useful."

You will note the reference to the on-the-record exchanges between Michael Joseph and your chairman, Ms Slipman, which have thus far proved unsatisfactory to policyholders who must have a right to be provided with an explanation of the FOS's process.

Disparity of resources - David and Goliath:

The FOS is an independent assessor of the complaints of individuals. As such, the FOS's lead case methodology has some very obvious weaknesses.

First, there is a risk that the unilateral internal FOS allocation of a complaint to a particular lead case group may not be wholly appropriate.

Second, the lead case complainant may not be sufficiently professional, concerned or well funded to present his/her important representative case with potency and clarity. Ranged against what may prove to be an amateur approach, is the formidable legal team of ELAS, including seconded staff from Lovells. ELAS may be a weak life company but it is a well-oiled, legal fighting machine prepared to deploy open-ended budgets in resisting claims, extending negotiations and exhausting all opposition.

Thirdly, the lead case may, at the eleventh hour, be "neutralised" by an offer from Equitable Life to settle, in return for a gagging order - thus leaving thousands of cases disenfranchised - without being privy to the terms of the settlement enjoyed by the precedent case.

EMAG has been led to believe that many cases that have been instigated in the Small Claims Court and the High Court that have been settled in full, or near to - always in return for onerous gagging orders. It is the Society's transparent objective to never get to the stage of receiving a judgement against it, seemingly regardless of cost. EMAG is aware that the terms of any such settlements are not revealed to the FOS. It is EMAG's impression that complainants with deep pockets, strong nerves and good lawyers are being secretly successful in achieving payoffs far in excess of the compensation offers that are in the public domain.

Barristers as hired guns:

Queens Counsels' opinions are treated with an undeserved reverence. QC's are merely hired guns working to briefs to support a client's desired stance. Time and again ELAS has deployed Gabriel Moss QC to present its case - with the objective to minimise any recommendation of compensation. Let me remind you that at the time of the compromise scheme proposal in the autumn of 2001 it was Moss QC's opinion was that there was no possible basis for any group claim for GAR mis-selling and hence NIL financial provision was made at that time for claims from those who left. This succoured tens of thousands of policyholders into staying put within the Equitable Life and forgoing their now recognised-to-be valuable legal rights to compensation.

The FOS has itself commissioned and published an opinion by Jonathan Hirst QC on quantum for late joiners (12th July, 2003). Hirst QC criticised the subsequent opinion of Moss and Carr that was published in September 2002, pointing out the inequity of comparing ELAS payouts with average competitor life companies AFTER an average MVA, which would obviously not have been necessary had the investment been made in a stable company.

But Hirst QC's opinion is a hybrid. It does not interpret the law as it currently stands but extrapolates a view on where the law appears to be going. It recognises the Society's limited resources in arriving at pragmatic quantum recommendations, whilst ignoring the fact that substantial provisions have already been set aside for the purpose. The society's chief executive Charles Thomson recently admitted in The Times (14th November, 2003) that he regards those substantial provisions, made for legitimate mis-selling claims, as a prospective new profit centre.

EMAG requests that the FOS publish its written brief to Hirst QC. Why did the Hirst opinion not address the opinion of George Bompas QC, known to have been delivered to the FOS in the spring of 2003, which stated that restitution is the appropriate level of compensation, whether ELAS is guilty of negligent or fraudulent misrepresentation.

The overview:

EMAG holds the view that the FSA is orchestrating life-support mechanisms for Equitable Life by granting questionable waivers and allowing inappropriate use of future profits, for example, for the perceived greater good of the financial services industry's reputation - but to the detriment of individual policyholder's protection. EMAG wrote formally to John Tiner at the FSA to amplify those fears on 14th November, 2003 expressing its grave concerns but received little by way of written assurance in return: (see:http://www.emag.org.uk/index.htm?correspondence/pb_to_tiner_14112003.html~content).

EMAG is alarmed at the appearance that the FSA may have exercised inappropriate pressure on the FOS. Also, that the "process" operated by the FOS is loaded against the individual and in favour of ELAS, due to above described vast disparity in resources. Further, we are concerned about the society's apparent ability to cause endless delay to the FOS conclusions on quantum, whilst it seeks to settle as many outstanding claims as possible on very modest terms.

These anxieties have been exacerbated by the FOS recently actually acting as a postal forwarding service for ELAS, without doubt giving the impression of endorsing those offers of settlement.

The FOS is sitting on its hands, whilst ELAS settles claims in full and final settlement - thus clearing the FOS's in-tray and negating the need for individual adjudications.

After months of delay, complainants are entitled to ask if the FOS is herding through these Bacon & Woodrow based offers, such that it can avoid having to make adjudications - as was the case in the months preceding the compromise (8th February, 2002), which struck out thousands of pending cases.

The FOS's own service charter states that it normally expects to resolve claims within 3 to 6 months. What circumstances justify delays of years, as has been the experience with ELAS? Is there any evidence of the FOS providing a personalised service to individual complainants? Why is the FOS not "levelling the playing field" by insisting that ELAS fund professional representation for the lead cases to balance the might of ELAS's legal machine?

Yours sincerely,

Paul Braithwaite
General secretary, EMAG
For more information see: www.emag.org.uk

Cc Ms Sue Slipman