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awards for non-financial loss

introduction

  1. Many of the complaints we uphold can be settled fairly by awarding customers a sum of money as compensation for the financial loss they have suffered. But in some circumstances that type of award would be inappropriate because:
  • the business’s maladministration, injustice or service failure did not cause the customer financial loss; or
  • the award would fail sufficiently to recognise the distress, inconvenience or other non-financial loss that the business has caused.
  1. This technical note sets out our approach to awarding compensation for distress and/or inconvenience and for other non-financial losses. We hope it will help businesses and customers resolve complaints satisfactorily without our direct involvement. By doing this, businesses may not only improve the service they provide to their customers, but they may also avoid the delays and costs that can result from having to refer a complaint to the ombudsman service.
  2. The law, as one judge put it, is that: "a contract-breaker is not in general liable for any distress, frustration, anxiety, displeasure, vexation, tension or aggravation which his breach of contract may cause to the innocent party" (Lord Justice Bingham (as he then was) in Watts v Morrow [1991] 4 All ER 937. See also Farley v Skinner [2001] UKHL 49). However, the judge added that this general rule does not apply to certain contracts where the very object is to provide pleasure, relaxation or peace of mind. Arguably, therefore, insurance and investment contracts come into this latter category - since their marketing often suggests that the aim is to give the buyer reassurance and peace of mind against future uncertainties.
  3. But whatever the state of the law that the courts would apply, at the ombudsman service we consider it important that financial service providers who cause people distress or inconvenience - on top of any financial loss - should compensate them for it. Most reputable businesses offer what they often term "ex gratia" or “goodwill” payments, where they recognise that their service has fallen short of the standards the industry seeks to provide. When Parliament conferred on the Financial Ombudsman Service the duty to make awards on the basis of "what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances", it was clearly seeking to replicate (with some modifications) the powers and practices of many of our predecessor ombudsman schemes.
  4. Under the rules of the Financial Ombudsman Service, where a complaint is decided in favour of the customer (in whole or in part), the ombudsman can:
  • make a money award against the business; or
  • direct the business to take such steps in relation to the complaint as the ombudsman considers just and appropriate (whether or not a court could order those steps to be taken).

    In addition to (or instead of) making awards for financial loss, the ombudsman can make money awards for:
  • pain and suffering; or
  • damage to reputation; or
  • distress or inconvenience.
  1. An award made by an ombudsman is legally binding on the business if the customer accepts it. This briefing paper deals with our general approach to making these awards.
  2. We decide all cases on their own merits and in the light of the particular circumstances of the dispute.

what is meant by 'distress and inconvenience'?

  1. We focus first on distress and inconvenience awards, as these are the most common awards for non-financial loss or damage.

    Distress includes embarrassment, anxiety, disappointment and loss of expectation. The degree of distress involved can vary widely. On the one hand, it can be little more than a relatively minor annoyance. But in other cases, it can cause worry, loss of sleep or even prolonged ill health.

    Inconvenience can include any expenditure of time and/or effort by the customer that has resulted from the business’s conduct. Again, in relatively minor cases this may not amount to a significant burden. But it can include severe disruption and a great deal of wasted time.
  2. Distress and inconvenience often go hand in hand. Where something has gone seriously wrong, it is quite common for the customer to have experienced both inconvenience and distress.
  3. Pain and suffering can be considered as more extreme forms of distress and inconvenience. They might arise, for example, in cases involving delays in arranging or paying for medical treatment under an insurance policy.

when does the ombudsman make distress or inconvenience awards?

  1. In all cases referred to us, we consider whether it is appropriate to make an award for distress or inconvenience - even if the customer does not specifically ask us to do so. Of course, that does not mean that we will make an award in every case.

was the firm at fault?

  1. Normally the question of an award only arises after a business, or its appointed agents, has breached a duty or been responsible for maladministration in its dealings with the customer. "Maladministration" might include delays, clerical or procedural errors, rudeness, incorrect or inadequate explanations or simply a failure to respond to the customer's requests.
  2. We will not make an award simply because a person has suffered some distress or inconvenience. For example, a customer may suffer considerable anxiety if an investment does not produce the hoped-for return. However, assuming that these risks were properly explained to the customer at the outset, and that a suitable product has been administered correctly, we would not uphold the complaint or make an award for distress. Making an insurance claim following a death or injury is likely to be distressing – and many situations giving rise to insurance claims, such as car accidents or break-ins, can be inconvenient and distressing. But again, unless the business has been guilty of some error or failure of service, we would not be justified in making an award.

was the degree of distress or inconvenience material?

  1. In many cases, although there has been a certain amount of inconvenience and/or distress, it will not be appropriate for us to make any award. All of us suffer some inconvenience in our day-to-day lives and in our dealings with commercial organisations. For example, the fact that a phone line is busy or that a name is not spelt correctly can be annoying - but neither is likely to warrant a compensation award (although an award might be warranted if the problem persists). We will not make awards where the degree of inconvenience or distress appears to be trivial.

the business’s conduct in handling complaints

  1. In addition to considering the impact on the customer of the matter that is the subject of the complaint, it may also be relevant to look at the business’s subsequent actions in addressing the customer's concerns.
  2. Businesses are required to meet certain standards when dealing with complaints. If the business has handled the complaint badly - causing the customer distress or inconvenience - then an award may be appropriate, even if we do not uphold the initial subject of the complaint. However, making a complaint does not in itself justify an award. Indeed, we do not normally make awards for matters arising from the handling of the complaint itself, except where the business maladministered its handling of the complaint (for example, through excessive delays) – or required the customer to take additional and unnecessary steps to pursue a complaint. This may include situations where, for example, a business refused to settle a case at an early stage, despite knowing that we had previously upheld similar complaints.

professional fees

  1. Awards for distress or inconvenience do not cover other costs that arise from the business’s actions in handling the complaint. For example, in a few cases we may make a separate award for the costs a customer incurs in bringing the complaint to us. However, such awards should be rare, as it is not normally necessary for customers to get help from professional advisers to bring a complaint.

what factors are considered in making an award for distress or inconvenience?

  1. The aim of any award we make is to compensate the customer for the distress and inconvenience suffered. None of the awards we make are intended to act as a fine, or as a general punishment of the business.
  2. There can be no hard and fast rules about the amounts that will be appropriate in making awards. They will depend on the circumstances of each individual case.
  3. We will consider all the relevant factors in the case, which might include:
  • the severity of the distress arising from the business’s actions (or lack of action);
  • the degree of inconvenience the customer was caused;
  • the period over which the problem occurred;
  • the nature of the inadequacy of the business’s actions.
  1. It may also be relevant to take into account the impact of the customer's own actions. For example:
  • delays in resolving a matter may have been caused partly by the customer;
  • the customer may not have taken reasonable steps to mitigate the effects of the business’s maladministration;
  • the customer may have not taken advantage of a benefit that was available and that did not compromise their ability to pursue the complaint (for example, the business may have offered to undertake some remedial action but not all that the customer wanted).
  1. When we assess the level of any award, we consider the customer's individual circumstances. We will consider the customer's own assessment of the degree of distress or inconvenience they have suffered, but this will not be decisive. Some customers may be reluctant to discuss distressing matters and may understate the degree of distress or inconvenience they have suffered, whilst others may overstate the position.

expenses incurred

  1. It is sometimes possible to relate the level of an award to a specific factor that is relevant to the circumstances of the case - for example, an estimate of the cost of phone calls and postage.
  2. Where the business’s actions have denied the customer access to a service, the cost of obtaining that service by another means (even where the customer did not in fact do this) can sometimes be useful measure. For example, it will be relevant to consider the cost of hiring a car (or other forms of transport) where a business’s actions have denied the customer the use of a car for a period.

customer's own time and trouble

  1. Allowances can sometimes be made for the time the customer needed to spend to put things right. Such allowances will normally be at a modest rate (around £50 to £100 a day, and not more than £10 per hour). However, a higher amount may be appropriate in the case of business complaints.

scale of awards

  1. A financial award will often be the only appropriate form of redress. But there will sometimes be cases where some other form of action may be more suitable. For example, rather than requiring a business to make a money award, we will sometimes require it to issue an apology or to provide the customer with an appropriate service which relates to the original problem.
  2. Where the degree of inconvenience and/or distress is sufficient to warrant a financial award, the level of the award is likely to be modest. Most awards are for less than £300 and in only a small number of exceptional cases do awards exceed £1,000. Awards involving pain and suffering are likely to be higher than those involving distress or inconvenience.

damage to reputation

  1. When we assess whether we need to make an award for damage to reputation, and the level of such an award if appropriate, we apply similar considerations to those for distress and inconvenience awards. Damage to reputation may occur because a business’s actions have resulted in:
  • a third party being misinformed about the customer's circumstances (for example, their creditworthiness); or
  • the improper disclosure of private information (for example, medical or other confidential records) which may be damaging to the customer's reputation.
  1. We would consider how widely the information was made available; the nature of the information involved; the impact the information had; and the customer's previous reputation.
  2. Awards for damage to reputation may be significant where specific damage(s) can be identified. In addition to making a financial award we may, where appropriate, consider requiring the business to minimise the impact of its earlier actions (by, for example, ensuring that credit agency records are corrected).

how awards are made

  1. Where appropriate, the various components that make up the award will be identified separately.
  2. In most cases the award will be payable by the business direct to the customer. Sometimes, however, if the customer owes money to the business, the ombudsman may direct that the award should be set off against the debt.

further information

We have published a selection of case studies that help show our approach to awards for non-financial loss. We also publish case studies covering the whole range of our work in our regular newsletter, ombudsman news.