What is a consumer?

Posted: 14th February 2014

RCJIn an important test case for the finance and insurance industries, the High Court is being asked to define what is meant by a 'consumer' as insurance brokers challenge the jurisdiction of the Financial Ombudsman Service (FOS) to consider a complaint made against them by one of their business clients.

The brokers were on the receiving end of a complaint from a businessman who claimed that they had failed to notify insurers of a claim that he had made under a directors and officers (D&O) policy. He was facing a high-value misrepresentation claim in respect of fund raising for his business and the FOS had agreed to consider his complaint.

In challenging the FOS’s jurisdiction, the brokers’ lawyers argued that the businessman was 'acting in his trade, business or profession' when the events giving rise to the claim against him arose and that he could not be viewed as 'a consumer'. It was submitted that the D&O policy had protected him against his potential liabilities as a director, not as a private individual.

It was submitted that a D&O policy could not rationally be described as a ‘consumer transaction’, that the businessman had at all relevant times been 'acting in the course of his employment as a director' and that the FOS had applied the wrong legal test in accepting jurisdiction.

Lawyers representing the FOS argued that it had carefully followed the definition of 'consumer' laid down in the Financial Conduct Authority handbook before deciding that the businessman was 'an eligible complainant'. They gave the example of private medical insurance policies which are taken out by companies for the benefit of their employees as individuals. The businessman was facing a substantial claim against him personally and the brokers’ attack on jurisdiction was 'completely artificial'.

Opening the way for the brokers to pursue a full judicial review challenge, however, Mr Justice Blair noted, "There are issues here which I think would benefit from more consideration. The case is sufficiently arguable for permission to be granted." Directing that the case be heard as soon as possible, the judge said, "It is important that this matter is sorted out; it is a matter of great worry for (the businessman)."