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technical note

compensation for distress, inconvenience or other non-financial loss

 

1. what this note covers
2. what is meant by "distress", "inconvenience" and "pain and suffering"
3. when does the ombudsman consider compensation for distress or inconvenience
4. what about business customers
5. was it the financial business’s fault
6. was the degree of distress or inconvenience material
7. how did the business handle the consumer’s complaint
8. what factors are considered in awarding compensation for distress or inconvenience
9. allowance for consumer's time
10. allowance for consumer's expenses
11. professional fees
12. how a business might damage a consumer's reputation
13. how we assess any compensation
14. how awards are made
15. scale of awards
16. cases where the ombudsman awarded modest compensation (less than £300)
17. cases where the ombudsman awarded substantial compensation (£300–£999)
18. cases where the ombudsman awarded exceptional compensation (£1,000 or more)

1. what this note covers

This technical note sets out our approach to considering – where we uphold a complaint (wholly or partly) – whether we will award compensation for any distress, inconvenience or other non-financial loss which was caused to the consumer by the financial business.

In addition to the power to require the financial business to pay compensation for financial loss or to put something right, we also have power to require the business to pay costs and/or compensation for:

• pain and suffering; or
• damage to reputation; or
• distress or inconvenience.

2. what is meant by "distress", "inconvenience" and "pain and suffering"

Distress and inconvenience often go hand in hand. Where something has gone seriously wrong, it is quite common for the consumer to have experienced both inconvenience and distress.

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 consumer 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.

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.

3. when does the ombudsman consider compensation for distress or inconvenience

Where we uphold the consumer’s complaint (wholly or partly), we consider whether it is appropriate to award compensation for distress or inconvenience caused by the business – even if the consumer did not specifically ask us to do so. Of course, that does not mean that we will make an award in every case. Exceptionally, we may also award compensation for distress and inconvenience caused by the business in handling the complaint particularly poorly, even if we do not uphold the underlying complaint itself.

The courts usually award compensation for distress or inconvenience only where the object of the contract is to provide pleasure, relaxation or peace of mind. We usually award such compensation more widely, reflecting the legal requirement that we should make awards on the basis of "what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances". We usually consider it fair that a financial business which has caused material distress or inconvenience or other non-financial loss should be required to pay reasonable compensation for that.

4. what about business customers

We treat sole traders and partnerships the same as personal customers. But a limited company cannot, by definition, suffer distress or pain and suffering – although it can suffer inconvenience. If the customer is the limited company, we cannot compensate the directors or shareholders personally.

5. was it the financial business’s fault

Usually, the question of awarding compensation only arises after a business, or its appointed agent, has breached a duty or been responsible for maladministration in its dealings with the consumer. "Maladministration" might include delays, clerical or procedural errors, rudeness, incorrect or inadequate explanations or simply a failure to respond to the consumer's reasonable requests.

We will not automatically award compensation just because the consumer has suffered some distress or inconvenience – it has to have been caused by the financial business. For example:

• 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. That is not the financial business’s fault. Unless the business itself has caused distress or inconvenience through some error or failure of service, we would not be justified in awarding compensation.
• An investor may suffer considerable anxiety if an investment does not produce the hoped-for return. However, assuming that the risks of the investment were properly explained to the investor at the outset, and that a suitable product has been administered correctly, we would not hold the financial business liable for the anxiety.

6. was the degree of distress or inconvenience material

In many cases, even though there has been a certain amount of inconvenience and/or distress, it will not usually be appropriate for us to award compensation. We will not award compensation where the degree of inconvenience or distress appears to be trivial.

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 result in a compensation award (although an award might result if the problem persists).

7. how did the business handle the consumer’s complaint

In addition to considering the subject matter of the complaint, it may also be relevant for us to look at the business’s subsequent actions in addressing the consumer's concerns. Businesses are entitled to a reasonable opportunity to investigate complaints, but they are required to meet certain standards when doing so (see DISP 1 in the FSA handbook).

The mere fact that the consumer has had to make a complaint is unlikely to justify compensation for distress or inconvenience. But we are likely to consider awarding compensation where the business has handled the complaint badly – causing the consumer distress or inconvenience – whether or not we uphold the initial subject matter of the complaint. Handling a complaint badly can include:

• excessive delay; or
• requiring the consumer to take additional and unnecessary steps; or
• refusing to settle a case at an early stage, despite knowing that the ombudsman had previously upheld similar complaints.

8. what factors are considered in awarding compensation for distress or inconvenience

The aim of any award we make is to compensate the consumer for the distress and inconvenience suffered. None of the awards we make is intended to act as a fine, or as a general punishment of the business.

There are 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, which might include:

• the severity of any distress;
• the degree of any inconvenience;
• the period over which the problem occurred;
• the nature of business’s actions (or inaction).

It may also be relevant to take into account the impact of the consumer's own actions. For example:

• delays in resolving a matter may have been caused partly by the consumer;
• the consumer may not have taken reasonable steps to minimise the distress or inconvenience;
• the consumer may have rejected a benefit that was available and that did not compromise the ability to pursue the complaint (for example, the business may have offered to undertake some remedial action but not all that the consumer wanted).

When we assess the level of any award, we consider the consumer's individual circumstances (including their state of health and age). We will consider the consumer's own assessment of the degree of distress or inconvenience they have suffered, but this will not be decisive. Some consumers 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.

9. allowance for consumer's time

In awarding compensation, we sometimes make allowance for the time the consumer needed to spend to put things right – though not usually for the consumer’s time in dealing with us. This 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 – but not usually as much as the business’s charge-out rate.

10. allowance for consumer's expenses

We may also make allowance for expenses reasonably incurred – such as a reasonable estimate of the cost of phone calls and postage.

Where the business’s actions have denied the consumer access to a service, the cost of obtaining that service by another means (even where the consumer did not in fact do this) can sometimes be useful measure. For example, where a business’s actions denied the consumer the use of a car for a period, it will be relevant to consider the cost of hiring a car (or other forms of transport).

11. professional fees

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 costs award for professional fees which a consumer needed to incur in bringing the complaint to us. However, such awards are likely to be rare, as it is not normally necessary for consumers to get help from professional advisers to bring a complaint.

12. how a business might damage a consumer's reputation

A business may damage a consumer’s reputation in various ways. For example, damage may arise because the business’s actions resulted in:

• a third party being misinformed about the consumer'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 consumer's reputation or safety.

13. how we assess any compensation

When we assess whether we should award compensation for damage to reputation, and the amount of such compensation if appropriate, we apply similar considerations to those for distress and inconvenience awards. We are also likely to consider:

• how widely the information was made available;
• the nature of the information involved;
• the impact the information had; and
• the consumer's previous reputation.

The amount of compensation for damage to reputation may be significant where specific damage can be identified. In addition to awarding compensation we may, where appropriate, consider requiring the business to minimise the impact of its earlier actions (by, for example, ensuring that credit-reference agency records are corrected).

14. how awards are made

Where appropriate, compensation awarded for distress, inconvenience or other non-financial loss will be identified separately from any compensation for financial loss. In most cases the compensation for distress, inconvenience or other non-financial loss is likely to be payable by the business direct to the consumer. Sometimes, however, if the consumer owes money to the business, the ombudsman may direct that the award should be set off against the debt.

15. scale of awards

Financial compensation will often be the only appropriate form of redress. But there will sometimes be cases where we are likely to consider some other form of action to be more suitable. For example, we will sometimes require the financial business to issue an apology or to provide the consumer with an appropriate service which relates to the original problem.

Where the degree of distress, inconvenience or other non-financial loss is sufficient to warrant the award of compensation, the amount 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.

Below are some examples to illustrate our general approach to making awards for distress and inconvenience and other non-financial losses. The cases reflect actual decisions made by ombudsmen. Assessing the appropriate amount to be awarded in individual cases depends on the circumstances of each case.

Generally, compensation awards for pain and suffering are likely to be higher than those involving distress and inconvenience. And, dependant on the consumer’s circumstances, repeated or aggravated errors may cause more distress and/or inconvenience than an isolated error – as reflected in the example case studies below.

16. cases where the ombudsman awarded modest compensation (less than £300)

a	Minor inconvenience caused by the financial business not getting the consumer's address right, despite a couple of requests, for two months.
b	Minor administrative error by the financial business which caused the consumer to write to/phone it a few times before the problem was sorted out.
c	Minor, but identifiable, delay by the financial business in paying out under a policy claim.
d	Administrative error by the financial business which caused the consumer to write to/phone it a significant number of times before the problem was sorted out.
e	The financial business lengthened by three weeks the time the consumer was unable to return home from alternative accommodation paid for by the financial business, following damage which had made the consumer's home uninhabitable.
f	Two-month delay by the financial business in providing the surrender proceeds of a policy.
g	The financial business caused the consumer to be without transport for two weeks when under the terms of the insurance it should have provided an alternative vehicle whilst the consumer's car was off the road as a result of an accident (travel costs incurred would be considered separately).
h	Failure by the financial business to provide information to the consumer, which it always knew it held, to enable him to sort the matter out with a third party. Issue remained outstanding for three months longer than it otherwise would.
i	Disappointment at being told that policy surrender proceeds were to be materially less than previously led to believe by the financial business.
j	Material distress arising from the financial business's continued failure to deal with an apparently eligible and potentially meritorious complaint.
k	Material delay arising from the financial business's failure to follow a settled FSA or ombudsman service approach, when it had every reason to believe it would be held liable.

17. cases where the ombudsman awarded significant compensation (£300 - £999)

a	The financial business (or contractors it appointed) caused the consumer personally to carry out significant cleaning or decoration following repairs by the appointed contractors.
b	Loss of opportunity for the consumer to make other investment arrangements because of the financial business's delay.
c	Disappointment and inconvenience caused when inheritance tax planning failed. Being led to believe exemption from tax had been obtained when it had not.
d	The financial business's repeated errors caused serious and continuing embarrassment to the consumer over a significant period of time when trying to make payments using his credit card - after having been assured, on several occasions, that earlier problems had been resolved.
e	Following the death of the consumer's husband, the financial business repeatedly wrote to her husband – rather than to her – about the insurance claim.
f	Delay by the financial business in providing correct information about encashment of a bond for a year. The bond proceeds were needed by executor for distribution under will.
g	Material delay arising from the financial business's failure to follow settled FSA or ombudsman service approach when it had every reason to believe it would be held liable, and every reason to know that the prospective policy shortfall would be distressing to the consumer.
h	The financial business failed to arrange and pay for alternative accommodation for the consumer and his young children following insured damage, causing them to remain in their property for a month without essential facilities.
i	Excessive intransigence by the financial business right from the start – ie failure to accept responsibility for its mistakes, frustrating the complaint process, and fighting the case through every stage in the ombudsman service, despite the ombudsman service pointing out at an early stage that the business was failing to follow a settled and published FSA or ombudsman service approach.
j	Policy written in trust incorrectly by the financial business – where the error cannot be unravelled and/or legal advice was needed to offset unintended results of way trust written.
k	Pension policy under-paid for a significant period, leading the consumer to suffer reduced living standards for a material period of time.

18. cases where the ombudsman awarded exceptional compensation (£1,000 or more)

a	The financial business wrongly ‘bounced’ a cheque drawn by a business customer on its account. The cheque was payable to the customer's main supplier, in the same business community. The cheque was paid several weeks later, but the business was caused significant embarrassment within the community and, until sorted out, risked substantial loss of business. The business's proprietor also had to spend a significant amount of time sorting the problem out, as well as reassuring other suppliers and customers – to try to stop the adverse effects of a whispering campaign.
b	Repair work by the financial business (or its appointed contractor) exposed the consumer and his family to health risks (eg from asbestos).
c	Significant error by the financial business in connection with a pension policy, meaning that the consumer had to consider working again after initial retirement.
d	The financial business wrongly disclosed the consumer's address to her violent estranged partner – it knew the circumstances, and about his violence. The partner subsequently broke into her home and assaulted her, causing her to spend several days in hospital.

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