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ombudsman news

issue 23

December 2002

other investment complaints

These case studies illustrate some of the complaints we have dealt with recently about a wide range of other investment matters.

life insurance - claim declined on grounds of non-disclosure

Before Mr and Mrs E took out a joint life insurance policy, they were asked to complete a questionnaire about their smoking and alcohol consumption. The questionnaire asked whether they had consumed more alcohol "in the past" than they did now. However, it did not include any questions about whether they had previously smoked more.

Mr E had, in fact, been a heavy smoker at one time. Several years before taking out the policy, he had consulted his doctor about what he thought was a chest infection. On his doctor's advice, he had cut down on the number of cigarettes he smoked.

A year after taking out the life insurance, Mr E died of lung cancer. The firm refused to pay the sum assured under the policy, on the grounds that Mr E had failed to disclose his chest problems. So Mrs E brought the complaint to us.

complaint upheld
We discovered that Mr E's doctor had diagnosed Chronic Obstructive Pulmonary Disease when Mr E first consulted him, although the doctor had not told Mr E this. He had simply told him he had a chest infection.

Mr E had not failed to disclose relevant information when he completed the questionnaire. He had completed it correctly, to the best of his knowledge. When we put this to the firm, it agreed to pay the claim.

inappropriate advice - investment of funds needed for school fees

Mrs J complained about the investment advice the firm gave her in connection with money she planned to use to pay her children's school fees. She thought the product that the firm had recommended represented too high a risk.

Since she had made it clear that she would need to withdraw some of the money fairly soon, she also thought the firm should not have advised her to invest all of it.

The firm rejected her complaint. It said the investment was consistent with Mrs J's attitude to risk and that it had not been wrong to invest all of the money. It claimed that Mrs J already had sufficient money in a savings account to cover the first year's school fees, so would not have needed to make an early withdrawal.

complaint upheld
The purpose of the investment was to provide funds to meet a known and imminent cost, so we did not think a high-risk strategy was appropriate. Moreover, a high-risk strategy did not match Mrs J's attitude to risk. And there was no evidence that she had sufficient funds set aside to cover the first year's school fees, so the firm should not have advised her to invest all the money.

We decided the appropriate remedy was for the firm to pay Mrs J an amount equivalent to a full refund of her initial investment, less the amounts she had subsequently withdrawn.

whether firm should have informed customer about charges it would deduct when she cashed-in the investment

Mrs G complained to the firm when it deducted charges from the amount she received when she cashed in her investment. She said the firm's customer service representative had not mentioned any deductions when she had telephoned the firm to make arrangements and to find out how much money she would get.

When the firm checked its tape recording of Mrs G's call, it found that she had not asked how much she would receive and the firm had not quoted any figures to her. It therefore rejected her complaint.

complaint rejected
The only telephone call Mrs G had made to the firm was the one it had recorded. And the firm had been under no obligation to tell her, in the course of that call, that it would deduct charges if she withdrew her money. When Mrs G had taken out the policy, the firm had sent her a brochure that included clear information about the charges that it might deduct when the policy was surrendered. We considered this information was sufficient and we did not uphold her complaint.

pension opt-out advice - customer's evidence unreliable and contradictory

Mrs A had a permanent job teaching five mornings a week at a local school. She worked at the same school every afternoon as a supply teacher. Her complaint concerned the advice she said the firm had given her about her pension arrangements. She claimed that she had acted on the firm's advice to opt-out of the teachers' pension scheme, as the firm told her that supply teachers were not eligible to be in the scheme.

Mrs A said she had subsequently discovered that supply teachers were eligible to join the scheme, so she complained to the firm. However, it refused to uphold her complaint so she came to us.

complaint rejected
We asked Mrs A to send us some of her recent payslips. We noted that one of them showed that her employer had deducted a contribution to the teachers' scheme. Mrs A said this deduction had been made in error and that the money had been refunded to her shortly afterwards. She said that no other pension contributions had been deducted from her pay on any other occasion. We asked to see other payslips, but Mrs A was unable to supply any.

We checked with the teachers' pension scheme and with the county council that employed Mrs A. We found that she had been a member of the scheme but, before the date when she said the firm had advised her, she had completed and signed an opt-out form, and had received a refund of four months' worth of contributions.

When we asked Mrs A about this, she said the date she had originally given us had been incorrect and that the firm had advised her a month earlier than that. This would have meant she was advised before she completed the opt-out form.

However, the firm's "fact find", completed at the time of the sale, showed the date that Mrs A had quoted originally. Since Mrs A's evidence was unreliable and contradictory, we did not uphold her complaint.

life insurance - premium receipt books no proof that policy still valid

Mrs B brought her complaint to us after the firm refused to pay out on two life insurance policies belonging to her late father, Mr W. It had told her that the policies no longer existed but that it would send her £37.18 as a goodwill gesture.

complaint rejected
When we looked into the matter, we found that Mr W's mother had taken out the policies for him in 1916 and 1918. After Mr W died in 2000, his daughter had found the receipt books for the policy premiums. She had no other documents relating to the policy, but she sent the books to the firm, hoping to get a considerable sum.

We explained to her that the firm had been correct in telling her that it could not pay out on a claim simply on production of premium receipt books. These books merely proved that premiums had been paid, not that the policies still existed.

Initially, the firm had been unable to trace the policies at all. Eventually it confirmed that they had lapsed in 1938, when Mr W's mother had died and the premium payments had stopped. The sum that the firm had offered Mrs B as a gesture of goodwill - £37.18 - represented the total death benefit it would have paid out under the policies had her father died in 1938, immediately before the policies lapsed.

Walter Merricks, chief ombudsman

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.